Whether you should pay off your home mortgage in advance or continue investing? It is a difficult choice. Although doing some mathematical calculations can help you make a decision, it actually goes a long way in helping you make the right decision. Psychologically speaking, your own urgent needs, risk tolerance, real estate market conditions, and taxes all play a vital role in making the right decision.
Making extra payments to your loan can help you save a lot of interest. The homeowner who pays the additional loan is paid a return equal to the mortgage interest rate minus the tax credit. Based on today’s money market accounts, savings accounts, deposits, etc., paying interest rates of less than 1%, paying off your mortgage in advance will bring you an annual rate of return of 3% to 6%, which of course depends on your mortgage Lending rates.
Advantages of paying off your mortgage early
• No need to pay interest on loans again and get a guaranteed return on investment equivalent to interest minus all tax deductions.
• Own your own house completely.
• You no longer need to pay interest and huge principals, making your finances more flexible and saving money.
• You own a home that avoids inflation.
• In addition to property taxes, your family is not responsible for other housing costs.
If you don’t consider the life cycle of a mortgage loan, paying off the loan does have a lot of benefits. Paying extra interest and principal on your home loan will greatly reduce the time it takes to pay your principal. Paying your principal extra is always a wise choice.
Disadvantages of paying off your mortgage early
In some cases, there are many benefits to paying off your mortgage in advance. But for some individuals and families, they should use cash flow or excess funds for other investment opportunities, such as retirement funds, education savings, car loans, credit cards, etc. Hiring a qualified financial officer to provide you with the necessary consultation will be very beneficial to you.
• Pay more personal income tax: You lose your right to use your mortgage interest to deduct personal income tax.
• Trapped property rights: Although you paid off your mortgage, you have no chance of making a profit other than selling your house.
• Although you paid off your home loan, your home appreciation will be equal.
• Lost potential investment opportunities
When considering whether to pay off your loan early, you should check your financial situation and your short- and long-term goals.