What are the advantages and disadvantages of paying off your mortgage?

Paying off a mortgage early can help your financial position and also give you peace of mind. You can save on interest costs, and once you’re no longer making repayments, you have liquidity for other goals. 

What are the benefits of paying off your mortgage?

If you pay more than the minimum repayments on your mortgage, you can pay it off fully before the end of the term. You can achieve this by increasing the amount or frequency of repayments.   

The first benefit of repaying the mortgage early is that you gain ownership of your home earlier. This reduces the risk of losing your home due to default if your circumstances change in the future. When you’ve repaid the mortgage, you’re free from the financial burden of monthly repayments.

Another huge advantage of paying off the mortgage before its due date is the interest savings. When you repay the loan earlier, the actual interest paid reduces, which can save you a significant amount over the years. In addition, if you have a variable interest rate on your home loan, your exposure to increased rates reduces when you repay the mortgage earlier.

Yet another benefit of paying off the mortgage early is that you’re relatively secured when the market is unstable. If you need funds and wish to tap into your home equity, then it may be challenging to do so if the value of the property has gone down. Paying off the mortgage allows you to use your home as a security to help meet emergency fund requirements.

What are the disadvantages of paying off your mortgage?

While there are numerous benefits, there are also some potential disadvantages to paying off the loan early. If you’re an investor, you wouldn’t be able to claim tax deductions from your interest charges if your loan was paid off in full. Your credit score may also be slightly affected by you paying off the mortgage early. 

If you have a fixed interest rate home loan, the lender may charge some early discharge fees if you pay off your mortgage during the fixed rate term. These are applicable to cover the lender against the loss of interest. Your loan agreement may not allow extra installment payments, so check with your lender before making a decision.

Is paying your mortgage off completely a good idea?

You would surely feel more at peace when you no longer have to make regular repayments. However, paying off the mortgage completely may not always be a wise decision in every financial situation.

For example, as you grow older and approach retirement, you still have to be sure that there’s ample money to bear the expenses during unexpected incidents or events like a sudden illness.

At the time of retirement, if you haven’t cleared your home loan entirely, then you may be able to draw down or borrow some money against the home equity. While using your home equity to borrow more funds, you don’t have to re-mortgage your property, reducing time and effort. You can use this money to invest, meet other expenses, or even help a family member. This could be one of the benefits of not paying off the mortgage early. 

You can choose between multiple repayment options if you have a home loan. It is best to choose one that suits your financial situation and requirements.

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