Paying off your mortgage can be liberating, especially if you’ve been making monthly payments for many years. If you’ve come to a point where you want to pay off your mortgage early and see the back of it, we look at whether there are any disadvantages.
Before we continue, note that it’s always a good idea to speak to a financial adviser before making a significant financial decision. Qualified financial advisers will help you make informed decisions based on your unique financial circumstances.
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Is it worth paying off my mortgage early?
It is always a good idea to clear your debts. However, it pays to be smart about it. Whether paying off your mortgage early is going to be beneficial or not depends on your unique circumstances.
That’s why it might be in your best interest to consult a mortgage broker or financial adviser first. These professionals can help assess your financial situation. Based on their calculations, they can inform you whether paying off your mortgage early is a wise move or not.
Should I pay off my mortgage early?
This will depend on your personal circumstances. You might consider paying off your mortgage if your financial situation makes it a logical step to take.
However, paying off your mortgage early might not be a good idea if you have other debts with higher rates of interest. It might be wise to clear these first to avoid hurting your credit report. It’s not also a good idea if your income is low, haven’t saved much, or you struggle with household expenses.
Also, if your mortgage interest is low, meaning you make low mortgage monthly repayments, it might be wise to hold off. You could invest the extra money to increase your liquidity. Once your liquidity grows, you could pay off your mortgage if you really need to see the back of it.
Remember to consult an independent financial adviser or mortgage broker before making any major financial moves or decisions.
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Why shouldn’t I pay off my mortgage early?
The biggest downside to paying off your mortgage early is that it’ll reduce your liquidity. If you eat into your savings to pay off your mortgage, you might not have any cash left to invest.
Another reason not to pay off your mortgage early is that you may have to pay a penalty fee to do so. Such penalties can be large enough to result in it not making financial sense to pay off your mortgage. Always check the specifics of your mortgage deal.
You might also lose money if you pay off your mortgage early with savings from a savings account that pays a higher interest than your mortgage charges. Though such a circumstance is rare, it’s not impossible to come across. Crunching the numbers with a financial adviser could help you see how you’re losing money.
Finally, you may lack the funds to cover financial emergencies. If you face unexpected costs, your only options may then be to sell your house or take out another mortgage.
Taking out a second mortgage can be a challenge and could take time. Meeting the criteria required by mortgage lenders might be difficult after spending a considerable chunk of your savings. Additionally, you might risk losing your home if you can’t keep up with repayments.
