What are the Pros and Cons of Paying off Mortgage Early?

by Rate Shop Rate Shop

At some point in time as a homeowner, you might have wondered about paying off your mortgage early by making extra payments. But the question that matters here is: is doing so worth it or not?

Like anything else, paying off the mortgage early has both pros and cons. Let’s take a glance at them to decide whether you must do it or not.

Pros of Paying Off Mortgage Early

· You can save on interest.
Making additional payments to your mortgage’s principal balance can help you in saving a lot of money on your interest over time. This is because by paying off more of the principal amount, the interest rate will also decrease, as at the beginning of the loan, the interest rate is higher.

· You have peace of mind because of reduced stress.
When you have paid off your mortgage early, you will have one less expense to pay. In addition to this, you won’t even have a large debt to pay and can build up some equity in your home.

Cons of Paying Off Mortgage Early

· Other investment opportunities can be affected.
If you plan to spend a lot of your money on paying off the mortgage early, you may lose the opportunity to invest that money in other accounts. You are always advised not to use your entire individual retirement plan just to make mortgage payments early. It can also bump you up into a higher tax bracket, meaning you need to pay additional taxes. There are chances that you may also lose out on your retirement assets with a decreased rate of return.

· You might have to make a prepayment penalty.
In the case of most mortgage agreements, prepayment penalties are attached. The amount you can pay off and when are clearly mentioned in the agreement. You may think that it is unfair, but lenders and investors want to protect themselves from the loss that they may have to face because of the prepayments, and prepayment penalties help them in recovering. But that is not the only case; prepayment penalties can be beneficial for you if they have lower interest rates and reduce what you pay out-of-pocket on the loan.

Whether you want to pay off the mortgage early or not, you need to understand your financial situation and the terms of your loan. So, it is important for you to clearly understand what terms and conditions are associated with the mortgage you get. You can also compare mortgage rates from different lenders to choose the best mortgage in Mississauga that fits your unique needs the most.