Because interest rates are so low, few people would actually benefit financially by paying off a mortgage early, at least compared to other options. Instead, it would be wiser to take that money and invest it in a retirement account or a health savings account, especially if it is tax deductible.
There are a few instances when it would make sense to pay off your mortgage early, the most obvious being for people who are reaching retirement. But, anyone who has a top financial priority to live totally debt-free, people who have income to cover all expenses for the foreseeable future, and people that have knocked out all high-interest debt, might feel that paying down the mortgage is a good idea.
If you're one of the above mentioned people that would benefit from paying off your mortgage early, mortgage calculators will be a great source of information and help. Most people, however, will be better off keeping their surplus cash in reserve.
Use Surplus Money Wisely
The key is to check the yields of all your expenses to find the best place to put your surplus money or the money you would be using to pay off your mortgage. Anything that you do with this money that yields better than the interest rate on the mortgage will be a better deal than paying off the mortgage.
If you still have quite a few years before retirement, consider adding to your retirement funds instead of paying off your mortgage. Don’t forget that your calculation of yields for company investments versus paying off your mortgage should include tax deductions and matching contributions from your employer.
Always keep in mind that real estate is not a liquid asset. Just because you put money into your house, it doesn’t mean you will be able to get that money back out if you need it.
Refinance Your Mortgage
If your current mortgage interest rate is meaningfully higher than current rates, your first priority should be to refinance. This could significantly lower your monthly mortgage payment and give you extra money to pay off other expenses. Once your expenses are paid, begin saving for retirement. Once you have a good retirement nest egg, consider paying off your mortgage early.
These are the most common things you need to consider when deciding if it makes sense to pay off your mortgage early. You may also want to speak with an accountant and a financial adviser to make sure you are making the right decision for your personal situation.
