What Happens If I Pay Off My Mortgage Early

What Happens If I Pay Off My Mortgage Early – What is the best option – should I pay off the mortgage early or use the money responsibly (investment, pay off debt, etc.) and find a more profitable way?

This is a financially responsible question that most people ask themselves at some point; Especially when they find extra money, they want to use it. On more than one occasion, after my husband and I got a new salary or bonus, I asked if it would be a good idea to use the extra money to pay the extra mortgage principal each month.

What Happens If I Pay Off My Mortgage Early

Why is that? That’s because eliminating monthly mortgage payments is classically accepted as a “prerequisite” to achieving financial freedom. ABC “Shark Tank” co-host and personal finance author Kevin O’Leary was quoted.

When You Should (and Shouldn’t) Pay Off Your Mortgage Early

“If you want to find financial freedom, you need to get rid of all debt—and yes, that includes your mortgage.”

And he doesn’t just give advice. Paying off your mortgage in full is a sentiment that has been shared by financial gurus, advisors and popular retirees for decades.

Even those looking to retire early have made paying off their mortgage a top priority. Read the stories of dozens of early retirees online and you’ll quickly realize that getting rid of your mortgage debt is a huge factor in reducing the amount of money you need to reach your goals.

But remember that we are all in a very unique place in history when it comes to interest rates. Until 2016, the US Federal Reserve has kept interest rates close to 0 for almost 6 years (in an effort to stabilize the economy). That means anyone who took out a new or refinanced mortgage in the past decade could pay between 3 and 5 percent in interest.

Common Mistakes You’ll Want To Avoid When Paying Off Your Mortgage

If you are one of these people and can lock in a lower rate, is it necessary to pay off the mortgage early when you have a better opportunity to use or grow the money?

In this post, we’ll look at both sides of the early mortgage payment argument and weigh the pros and cons. In the end, you can discuss what factors help you the most and what you think is the best use of your money!

Some people get excited when they think about paying off their mortgage early. And for some good reasons!

Imagine waking up and saying to yourself: I don’t owe anything! I could lose my job tomorrow and it wouldn’t matter. I did what was necessary to protect my family and the great fortune I depended on. The house and everything in it is still mine – because I paid for it!

What’s The Best Choice: Paying Off A Mortgage Or Investing?

This simple but powerful psychological reason causes many people to rush to pay off their homes at exorbitant rates. Whether it’s a career or a weight loss goal, they just want to say “This house is mine! I have it and no one can take it away! “

Who can blame them? Wouldn’t it be nice to not see those big mortgage payments deducted from your checking account every month?

The definition of a mortgage is a loan. Loans have interest. For interest, there are only two sides:

Unfortunately, since no one is a creditor, we are all on the wrong side of this equation! And the longer you hold the mortgage, the more interest you will pay the lender over time. Who wants to do that?

Should You Pay Off Your Mortgage?

Fortunately, mortgages are meant to be used, and the process to do so is simple. The sooner you pay off the principal, the less interest you’ll pay over time!

Savings are not trivial! For example, an extra $100 a month can save you $20,000 in interest payments over time! And not to mention shaving about 5 years off your payment schedule.

Want to see for yourself? Try this free calculator from Bankrate. I encourage you to check out and see how much interest you will pay up front over the life of the mortgage. It can be very eye opening!

Unlike rent, each installment of your mortgage payment actually builds “equity.” Technically, this is the amount of property (your home) that you officially own.

How To Save Thousands In Interest By Overpaying Your Mortgage Using Lockdown Savings

Why is this important? Because when you decide to sell your home, you have a right to that equity, which can mean tens or hundreds of thousands of dollars!

Let me tell you – when we sold our house, it was good enough to get a fat check for over $30,000! Depending on your next step in life after selling your home, you can use this money for a variety of reasons:

Many people don’t realize this, but paying off long-term debt is like an investment.

How about this, for example, let’s take a mortgage. When you pay off your mortgage early, it’s like investing that money and getting the same return. If your mortgage’s APR is 5%, for every additional dollar you put into principal, you’re effectively saving 5%. (For a more in-depth explanation of this method, read my post What’s Better – Paying Your Mortgage or Investing Your Money?)

When Should You Pay Off Your Mortgage Early?

Given historically low interest rates over the past decade, this may have resulted in better returns for some people. When was the last time you went to the bank and were offered a 5.0% fixed rate CD?

Why not invest in stocks for higher returns? Well… you can, and that’s one of the points we’ll discuss next. But remember: Paying off debt is like getting a “guaranteed” return (like a savings account or CD). Shares are not guaranteed and therefore carry high risk.

There’s a good reason many financial gurus and enthusiasts say to eliminate your house payment before you even consider retirement. Paying off your mortgage can reduce the amount you need to retire.

For example, let’s say you have a mortgage payment of $1,000 and expenses of $4,000. In the classic calculation, you need $5,000 x 12 months = $60,000 per year, which equates to a retirement savings goal of $1,500,000. But if your mortgage is paid off in full, you only have $4,000 in expenses to cover. That means you only need $48,000 per year, which you can use to target a $1,200,000 nest egg; $300,000 less difference!

What Happens To Your Mortgage When You Sell Your House?

(If you want to see how I calculated this or whether this number works, please check out this post.)

Again, thinking about retirement, if you’re smart about how much you want to pay in taxes in retirement, you should make sure you pay off your mortgage before you retire.

Here’s the thing: When you retire, you want to take a little money out of your nest egg and Social Security so you don’t have to pay taxes.

For example, you decide that you need $30,000 for retirement. Now let’s say $10,000 of the $30K is your mortgage payment. If the mortgage is paid off, you only need $20K instead of $30K. With $20,000, you owe no federal taxes, but with $30,000, you owe.

Pay Off Mortgage Or Invest In Real Estate?

There are many ways to dance around paying taxes in retirement, and it can get tricky. If you’re interested in learning more about this, read How to Get a Tax-Free Pension. We actually developed a scenario where you can withdraw $132,500 from your nest egg without paying taxes!

While each of the above reasons are good, the reasons for not paying off the mortgage early can be interesting.

If you have a fixed-rate mortgage, your principal and interest payments will remain the same for the next 15 or 30 years (depending on the type of mortgage you take out).

Although this is not very special, it should have a distinct advantage for you in terms of inflation protection.

Should You Pay Off Your Mortgage Early?

Think about it: As time goes by, all of your monthly bills add up, such as food, gas, utilities, car payments, insurance costs, etc.

But not your mortgage. Your mortgage is temporarily frozen. And compared to everything else you buy, that payment will “feel” small in the long run.

For example, let’s say you pay $800 in principal and interest today. As long as you have the loan and don’t pay it back, you always have it

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