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Paying Off Your Mortgage Early – Is It The Best Idea?

Paying Off Your Mortgage Early – Is It The Best Idea?

In a majority of the cases it is always better to pay off the mortgage and be done with the debt as it will save you a lot of money in terms of interest. However, under some conditions it is not the best thing that you can do.

Should the Mortgage Be Paid Off Early

This depends on factors such as what other debts are in force and the type of mortgage taken out in the first place. The decision to pay off the mortgage can be made after finding out how the repayment has changed over a period of time and how it will impact the finances.

A flexible type of mortgage is one in which the individual can overpay when there is an excess of funds and always borrow more money when short of funds. In such a case, it is always beneficial to pay off the mortgage as early as possible, provided extra fee is not charged for early closure. Such a repayment at an earlier date can save thousands of dollars that would otherwise be paid up as interest. In case there are other debts that need to be paid off, the funds that are available should not be used to pay off the mortgage. Typically, mortgage interest rates vary between 4 and 6 percent.

Credit cards charge interest rates of at least 25 or 30 percent. But paying off a mortgage early with available funds and keeping the credit/store card debts (that carry much higher rates of interest) does not make good economic sense.

It is important to bear in mind that mortgages from banks, building societies, etc., to this date, are one of the cheapest means to borrow money. It is not worth paying off a fixed mortgage early because many banks allow only a specific amount to be overpaid in a month and some others also have an included penalty charged for early repayment.

In this context it is important to prioritize your debts and plan their repayments in a proper manner. It would be wiser to pay off smaller debts such as student loans or credit card loans before trying to close the home mortgage loan.

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