Should You Pay Off Your Mortgage Early? Pros & Cons

If you are dealing with a mortgage that’s close to being paid off, you’re anticipating what seems like the sweet freedom of not dealing with any more payments after that. You have more financial flexibility than you’ve had in the past. Not to mention, the home you’ve lived in is all yours. But what if you want to pay it off early?

It may seem like a good idea to pay it off now and enjoy full ownership of your home. Is it a wise financial decision? The thing to know is that it’s never a bad idea to pay off your mortgage earlier than usual. However, there are some advantages and disadvantages that you need to be aware of.

What Does It Mean To Pay Off Your Mortgage Early?

Mortgage spelled out in letters

If you pay off your mortgage early, it can reduce or completely eliminate your debt ahead of schedule. There are some ways to go about doing this. It includes but is not limited to the following:

  • Paying a lump sum towards the leftover principal
  • Make extra monthly payments
  • May biweekly payments instead of monthly
  • Refinance for a shorter term

Sure, it seems convenient to consider paying off your mortgage early. However, this may not be the best move to make depending on certain factors such as your current financial situation, interest rates, or other goals that you may have. 

What Are The Pros of Paying Off Your Mortgage Early

Man holding envelope full of cash

As mentioned earlier, if you intend to pay off your mortgage early, it’s good to know the mortgage payoff pros and cons. Of course, we’ll begin right off with the pros. They include the following:

  • Save on interest: If you want to save money paying off your mortgage early, you can do exactly that for the purpose of avoiding interest. Yes, mortgages accrue over time in terms of interest, even in the early years when the payment goes towards it rather than the principal itself. You can save thousands of dollars over the life of the loan if you successfully knock off a few years.
  • Peace of mind: When you outright own your home, it’s one less monthly payment to worry about. You’ll have better financial security by being mortgage-free.
  • More flexibility: Flexibility in terms of our finances is something lots of us desire. Especially if we have intentions like early retirement, long-term investing, traveling, or supporting our families.
  • A guaranteed return on investment: If you pay down your mortgage, you get a guaranteed return that is equal to the interest rate on your loan. Let’s say your loan has an interest rate of 3 percent; you “earn” that same percentage on the money that goes towards early repayment. You can utilize this mortgage payoff calculator for PA borrowers to see how much you can save with early payments.

What Are The Cons of Paying Off Your Mortgage Early

Yes, you need to know the downsides of paying off your mortgage early as well. What seems good on paper may come with a few caveats. So, let’s take a look at what those are so you can make a more informed decision:

  • Reduced liquidity: If you put cash into your mortgage intent on paying it off early, it can cause your liquidity to suffer. Which means you may have less available for investments, large purchases, and even emergencies. It can jeopardize your savings and may stifle you in situations where flexibility comes in handy.
  • Missed investment opportunities: This specifically focuses on investments pertaining to stocks, real estate, and even your retirement. You may have missed opportunities if you’re focusing on paying off a mortgage that has a low rate. Not only that, the investment returns are greater in percentage compared to a mortgage rate that may be half the number (e.g: 6 percent annual ROI on stocks vs a 3 percent mortgage rate).
  • Penalties for prepayment are possible: While paying off your mortgage early may seem nice, some lenders might not let you off so easily. In other words, they may charge you for a prepayment penalty fee. Because of this, you’ll want to double check your mortgage documents or speak with the lender in order to decide if making additional payments are necessary. 

What If I Want To Refinance?

Refinancing may be a good option if you don’t want to commit to full repayments. It can reduce your interest burden and allow you to focus on a shorter term loan or lower interest rate (whichever serves you best). Not only that, it may help you preserve more cash in the process.

Tips For Early Mortgage Repayment

If early mortgage repayment seems like the best course of action, you can get it done with a strategic approach by following these early mortgage repayment tips. Here’s what to know:

  • Round up your payments: Suppose your monthly payments are about $1200 a month. You can round up to $1300 and save yourself time off your loan term.
  • Consider biweekly payments: You can pay off your mortgage biweekly instead of the usual monthly installments. One full extra payment throughout the year can benefit you in the long-term and may allow you to pay it off quicker.
  • Apply tax refunds or bonuses: If you have tax refunds or bonus payments, you can use them to pay the loan principal in lump sums. 

Contact Penn Street Mortgage For Any Questions You Have

If you’re considering the idea of paying off your mortgage early or if you are unsure if it’s a good idea, our advisors at Penn Street Mortgage can assist you. They have worked with borrowers like you to ensure that the whole mortgage process is not as complex and painless as you might think. If you have any questions or concerns about your mortgage situation, contact us today.

Skip to content