When most people buy a house, they don’t actually pay the whole amount but take mortgage. Mortgage means that you continue paying installments of money over 20 to 25 years. At one hand you enjoy living in your house but on the other hand, there is a sword over your head as you can lose your house if you don’t pay the periodic installments. Therefore, most people want to end the mortgage period as soon as possible.

Sometimes people get a chance to pay off the outstanding amount earlier than original term. While the decision to pay off mortgage earlier than anticipated looks very fascinating at first glance, there are various aspects which should be considered. There can be potential benefits as well as adverse effects. This article discusses all these aspects in detail.

Why should you pay it as early as possible?

Peace of mind:
One of the most important rationales behind paying off early mortgage is that it provides a great deal of satisfaction and peace of mind. You house actually becomes your house as no one can take it away from you now. At the same time, there is future worry of paying regular payments. Every person living in a mortgaged house would love to have a ‘mortgage retiring’ party.

Saves future interest:
One has to pay huge amount of interest over the course of mortgage. This is one of the biggest disadvantages of financing through mortgage. You can considerably decrease the amount of overall interest payment if you choose to pay the whole outstanding amount earlier than the original date. This means that you can spend all your future money according to your wish. You can save the interest amount or spend it according to your choice.

Financial flexibility:
A big portion of your monthly income would go towards mortgage payment. This can put huge constraints on your ability to spend freely. On the other hand, you get a great deal of financial flexibility if you have already paid your mortgage. You get absolute freedom to spend your money according to your will.

Why you should not pay it earlier than the agreed date?

Loss of financial asset:
You probably gained a lot of money from somewhere. That’s why you want to pay off your mortgage in order to gain peace of mind. However, the same money can also be used in various other ways, such as buying a good car or refurnishing your house. You can also invest that money somewhere to earn good return. You can potentially lose all these benefits if you choose to pay off your mortgage with this money.

Loss of tax shield:
You can enjoy huge tax benefits as interest you pay on mortgage is tax deductible. You will surely be losing this important benefit if you choose to pay all the money in one big installment. For some people this effect may be minimal, while for others it can be significantly huge. Therefore, it is extremely important that you consider your overall tax position before making any such decision.

Lack of diversification:
If you are putting all your money in your house, you are putting all your eggs in one basket. This may not be a very good strategy in the highly volatile financial situation we live in today. It may be a better option to invest the same money somewhere else rather than investing it in your house.

This article has discussed all the important aspects regarding paying off early mortgage. There are certain positive and certain negative aspects. Your decision should be based upon your individual circumstances.

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