Going to open houses and viewing homes that could one day be yours is exciting. The mortgage you are likely to take out for your house when you decide to purchase one, though, might not be so exciting. Having a large amount of debt looming over you can create stress, knowing in the back of your mind you will be accruing interest for up to 30 years. As a result, borrowers with extra cash may look to pay off their mortgage early. While some disadvantages can come along with this, there are plenty of advantages as well.
If you are a borrower that also happens to have a large amount of excess cash outside of emergency savings and retirement contributions, paying off your mortgage early may be in your best interest. It will prevent you from having to contribute more via interest. If you are set on using your savings to pay off your mortgage early, however, that may not be the best move. While you would still have your home equity to access, selling your house and receiving those funds isn’t always easy. Ensure you have emergency savings separate from any cash you would use to pay off your mortgage.
Save on Interest
Every month, you will make a payment on your mortgage. In addition to your monthly payment, you will also be paying interest on the total balance remaining. Paying off your mortgage early will ultimately reduce the amount of interest you would pay over the years, which could equate to thousands of dollars. This will allow you to use the cash you would have initially spent on interest for other things.
Reduces Financial Strain
By paying off your mortgage early, it will free up your cash flow each month. It reduces the household’s financial strain and provides more resources for saving and investing. This could result in a higher net return in the long-term, and even help during retirement, thanks to a lower monthly cost for housing.
A Little Goes a Long Way
You don’t have to miss out on the benefits of paying off your mortgage if you can’t pay it in full. Putting a large sum towards your mortgage will lower your overall interest costs each month, in addition to building equity. Plus, once you have paid off 20 percent of your mortgage (which means you have 20 percent equity in the property), you can cancel your private mortgage insurance and further lower your monthly cost.