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December 04, 2017

Pros and Cons to Too Much Planning

Adjustable-Rate-MortgageIf you own a home you might be considering the best way to pay off your mortgage. Each month, you’re require to pay off at least a portion, but what if you wanted to take those payments further by tackling larger payments month-to-month. If your term is 30-years, wouldn’t it be better if you could pay and own your home in 20 years, or even 15?

You have every right to swiftly pay off your mortgage. For some, the rewards could definitely be worth it! However, completing your mortgage prematurely could actually take away some benefits from you. These  benefits accumulate overtime during a mortgage’s life, and some argue that it could even balance out the benefits of early payments.

So, which decision is best for you? Sit tight, because we’ll talk about the pros when it comes to early payoffs, and some of the benefits you might miss out on.

Pros to an Early-Mortgage Payoff

Most people settle on paying the exact monthly amount. If you can afford higher payments the benefits could wind up saving you more in the long run—potentially hundreds or even thousands!

Having a paid-off mortgage will show up on your credit report, significantly boosting it. This demonstrates your financial responsibility and positive spending choices when it comes to future loans.

Second—and most importantly—extra payments detract from the overall amount spent! Think of it this way: each extra dollar you spend subtracts the interest you accrue over your mortgage’s life. Pay it off in full and you significantly reduce long-term interest costs.

Cons of an Early-Mortgage Payoff:

While early payments save money, you run the risk of shortening or eliminating many of the benefits that come with it. For example, interest tax deductions cap at a certain point every year. If you decide on a faster payment plan you’ll spend more month-to-month, simultaneously lowering the amount you can write off on tax returns. For many payments, you also won’t be able to write them off like traditional payments.

Secondly, the extra amount going toward your mortgage is considered an “illiquid” asset. This basically means that extra money beyond your monthly payment put immediately depreciates. This is important if you ever look to borrow it back from your mortgage. If you put additional payments down, you also lose the opportunity of having more money on hand. Potentially, this could be an issue if you begin to accelerate your mortgage and have a sudden emergency down the line.

Whether it comes to paying your mortgage off early or per term, the moral is this: make sure you stick with one of them! Paying early not only saves a ton of money. You’ll ultimately own your house, free-and-clear of financial stress. Either way, you can sleep safe and soundly in the comfort of your home on your own terms.

Whichever the case, we’d love to assist you with any of your mortgage needs. Do you know the current, low winter rates? Do you have any questions? Contact us online! We’d love to talk to you about your dream home! And if you have any questions, please message and follow us on Facebook and Twitter for all up-to-date mortgage and housing news!