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Thursday, November 28, 2013

Pros and cons of paying off your mortgage early

By Linda Baker

Buying your first home is one of the biggest steps you will ever take in your life and once you have signed on the dotted line you will feel a sense of relief. You are finally on the property ladder and you have the privilege of calling yourself a homeowner, but after a while the realization of what is in front of you will set in. For the next X amount of years you will have to pay a considerable amount of money each month towards your mortgage until it's finally paid off and you can forget about it.

Some people don't want to be tied into a mortgage for so long, especially if they're earning a considerable amount more than when they first took out their mortgage. Why would you want to be tied into something for so long when you have the means to pay it off early? Just because you can pay your mortgage in full before the agreed upon date it doesn't necessarily mean you should. We're going to look at some of the pros and cons so you can decide for yourself what you should do.

Save lots of money

Save money by paying off your mortage early
Early payoff lowers interest costs
It's scary to work out how much money you will pay in interest over the lifetime of your mortgage. All that money is wasted and it's the same as taking some of your wages and flushing the notes down the toilet. 

If you repay your mortgage early you will end up paying a lot less interest and that is very attractive to people. Over 30 years it can add up to a huge amount that could be better spent elsewhere, but at the end of the day it's still a long-term plan.

New found freedom

Lower expenses by paying off your mortgage
Personal cashflow improves with pay off
Speak to anyone who has successfully repaid their mortgage and they'll tell you it's one of the best feelings in the world. 

For years and years you'll be used to having a small amount of money left over after your payments get taken out of the bank then suddenly you'll have all that extra money to spend on whatever you want. 

With all those extra funds you will be able to do almost anything you desire and you'll enjoy the latter part of your life a lot more.

Less chance to save

Cash-on-hand is reduced by high mortgage payments
Mortgage payments lower savings
When your mortgage is finally paid you'll have a lot more money, but even if you repay your mortgage twice as fast you will still have to go a long time without being able to save lots of money. 

Does it make sense to have all your money tied up in your home when you don't have any proper savings in the bank? If something was to happen and you needed money you might need to sell your home, or even if you refinanced it the fact you were paying it off early wouldn't mean anything anymore.

No special treats

Paying off a home loan before retirement is wise
Home loans create financial pressure
Once your mortgage is paid in full you can begin to live like a king, but you'll be old and you might not have a lot of years left in you. 

Some people seem to think life is for living when you're young and they definitely have a point. Will you be able to live an enjoyable life if all your extra money is going towards your mortgage? You won't be able to treat yourself like the rest of your friends and you might end up resenting it.Saving for retirement

What you eventually decide to do is completely up to you, but there is one thing all the experts tend to agree on. When you have extra money and you're looking for somewhere to put it you should start maxing out your retirement savings plans before anything else because it will ensure you can have a great life when you're older.

About the author: The author of this article is Linda Baker, a professional freelance blogger. She writes articles for First World Mortgage, a credible mortgage lender in Connecticut. Linda takes keen interest in wildlife photography and will soon do an exhibit to showcase her work.
Image licenses: 1.401(K) 2012, CC BY-SA 2.0; 2. 401(K) 2012, CC BY-SA 2.0 ; 3. OTA Photos, CC BY-SA 2.0 ; 4. 401(K) 2012, CC BY-SA 2.0