One question people often ask is if they should pay off their mortgage early. It’s a tempting thought to eliminate one of your largest monthly expenses, and who hasn’t dreamt of holding a mortgage burning party? But before making a major financial decision like paying off your mortgage early, you should ask yourself a few questions first.
Do you Still Have High Interest Rate Debt?
Considering that most 30-year fixed rate mortgages are below 4.5%, does it make sense to pay off your mortgage when you may have debt at a much higher interest rate? Debt like credit cards and student loans carry a much higher rate than your mortgage, and should be given priority, especially since they lack tax deductibility.
Will it Max Out Your Retirement Savings?
Before deciding to pay off your mortgage, you should spend some time evaluating your retirement savings. You may even want to bring in a financial advisor to make sure your retirement fund can take the hit.
It’s true that paying off your mortgage will affect the liquidity of your assets, but with lower household expenses, you may be able to increase your retirement plan contributions.
Will the Loss of Tax Breaks Hurt You?
Many people depend on the tax breaks their mortgages provide them. Before deciding to pay off your mortgage, don’t forget to factor these tax breaks into the equation, and consider how they will affect your finances.
Are You Planning to Move Again?
If you think you may want to sell your house and move in the future, it might be a smart idea to hold onto your cash rather than paying off the mortgage. This will allow you more money for a future down payment, and provide you with more options in the unlikely event that the market takes a turn for the worse.
Deciding to pay off your mortgage early is a big decision, and it’s one I recommend you make with the assistance of an experienced financial advisor. They will be able to evaluate all the information, and provide you with an option that will benefit you and your family in the long run.