Should You Pay Off Your Mortgage Early?

The usual advice when it comes to mortgages is that you should pay it as fast as possible. However, while prepaying a home loan could save you some money, there’s a chance that it might not be financially sensible for you in the long run.

Do note that if you’re financially capable of paying off your mortgage early (ideally before you retire), and if doing so will make you feel more at ease, then, by all means, go for it. Otherwise, to help you figure out if prepaying your mortgage from a company in Tempe is the right move for you, consider your monthly mortgage payments as cash flow instead of financial security or real estate investment. Then answer the following questions truthfully.

Do you have an emergency fund?

If your emergency fund can cover three to six month of unemployment, out-of-pocket payments for your insurance plans, and money for covering unexpected expenses such as medical emergencies and replacement of major appliances, etc., prepaying your home loan might make sense in your situation.

Is your home a viable investment?

Essentially, whether your home is a viable investment or not would mainly depend on where you live. Also, the growth of your home equity must be capable of beating inflation. With this in mind, do your due diligence and research the value of your home and whether similar homes in your area are appreciating or depreciating.

How’s your retirement plan?

In general, if you’re not fully financing your retirement plans, like a 401k for instance, think twice about prepaying. Unless your home equity is significant enough and you have plans of taking out a reverse mortgage once you retire, it’s better to put money towards your retirement plans instead.

Do you have any plans to move in the near future?

Couple reading their mortgage documents
Why would you give money to a mortgage company if you might potentially need to use it when you move? On the other hand, there are several assumptions for borrowers in the most suitable position to consider prepaying their mortgage:

  • You’re planning to stay in your home for 10 years or more.
  • You don’t have to consume debt, and your finances are generally in order.
  • You’re younger than 50.
  • You have more than 25% down payment/equity in your house.
  • The cost to own and run your home in a month is no higher than 30% of your income each month.
  • Your house is only around 2,000 square feet or average-sized and not a mansion of some sort.
  • You’ll invest the difference in potential savings you get from opting for a 15-year home loan or prepaying.

You also have to keep in mind that even if you managed to pay off your home loan early, you’d still need to maintain your property and pay taxes on it—you do get a nice break once you turn 65 though. So the answer to “should I prepay my mortgage?” is really a personal decision, one that you need to make after careful deliberation and accounting of your finances.

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