Let’s face it. A home loan is most probably the lengthiest and the biggest investment of your life. For one, most homeowners will usually apply for a lengthy 30-year mortgage. And just thinking about the never-ending monthly bills to last a lifetime is enough to keep you up at night, worried sick about not pulling it all together.
No matter how many years your mortgage is, it’s still a debt that will stick with you for a long, long time. It’s like an anaconda slowly gripping you to death. Indeed, it’s a big burden that can hinder most of your financial goals. Small wonder why more and more borrowers are dreaming and thinking of paying their loans earlier than the expected date. That’s especially true if they have large amounts of money at the moment. And in the process, reduce the overall interest of the loan.
But before you decide to pay your mortgage early, make sure that you won’t regret it at a later date. As much as you think it wise to pay early, there are drawbacks. Surprising right? That’s why knowing the essentials matter. Find out about the pros and cons of paying your mortgage early below.
The Benefits of Paying Your Mortgage Early
An obvious advantage in paying your home debt early is that you won’t be stressed with monthly payments anymore. The weight on your shoulders will lessen. And finally, your home can now be rightfully yours. Added to that. You free yourself of the financial burden. Now, you have more extra cash to splurge on the finer things in life: your hobbies and traveling, etc.
You can also start making home improvements after paying your debt. This is so that when it’s time to sell your property, your home value increases as well. After all, a property is a lifetime investment. Plus, doing so will positively reflect on your credit report. This means you’ll have a better credit score. Consequently, you’ll attract more lenders if ever you want to invest in another home.
Another huge advantage in paying your mortgage early is that you’ll save more money. Because not only are you paying for the remaining balance, you are also paying for the loan interest.
However, before you throw all that money back to your lenders, think. If your goal is to reduce your monthly loan debt, then you should consider mortgage refinancing instead. This is when you replace your current mortgage with a new home loan. Before you react, know this strategy is sound. It could yield lower monthly payments and interest. As a result, you’ll save a couple of thousand dollars aside from legally owning the property after some time.
The Downsides of Paying Your Mortgage Early
Sure, paying your mortgage debt early eliminates one huge bill. But using your extra cash and paying it on a mortgage can make you short on other debts that you have to pay. What we mean by that is by focusing yourself on one debt, you could be sacrificing the other aspects of your life.
Lucky for you if you don’t have other existing debts. But that’s not always the case. What if a medical emergency happens? Where would you get needed cash if you’ve used it all to pay your mortgage in one setting?
Instead of paying your mortgage early, you should explore other options that can benefit you more. For instance, that extra cash could be more useful if you save or invest it in business. Or, for that matter, on other money-generating tactics such as home renovations.
Another disadvantage in paying your mortgage early is you may face an expensive penalty. Before you pay it all off, make sure that you are not limited to how much you can pay and when. It may sound unfair, but these types of loans with a prepayment penalty usually have lower interests.
Thus, if you think money will rain in time, make sure you apply for a mortgage that allows you to pay early. As always, chance always favors the prepared mind.