Is Paying Your Mortgage Off Early A Good Idea?

Is paying your mortgage off early a good idea? The simple answer is, if you can you should but there are other things that you need to consider before you make your decision. I personally know that I want to pay off my mortgage early and after reading Dave Ramsey’ the total money makeover, this is now my goal for the next 10 years to pay off my 35+ year mortgage. I am currently working through step 3 of the 7-baby steps to build wealth, although I am making small early repayments, I am focusing on funding my emergency fund.

Last month marked my 1 year anniversary since I became a homeowner and moved into my home. The last 12 months has been absolutely dreamy, sure COVID ruined my travel plans but it gave me time to work on my home and get it to a place that I am very proud of. There are so many things I wish I knew before I became a homeowner especially wished I knew the associated costs with buying a house and I shared my thoughts to help potential homeowners. Once you get on the property ladder, you might be thinking, Is paying your mortgage off early a good idea or take your time?

Disclaimer – I am not a mortgage or financial advisor.

Is Paying Your Mortgage Off Early A Good Idea?

Buying a house with a mortgage is one of the biggest financial decisions you will ever make and it’s one you need to thoroughly think about before signing on that dotted line. I knew from the mortgage I was going through the mortgage process that if I am able, I shall be making overpayments every single month and I do. The thought of paying off my for the next 35 years does not feel me with much joy because it’s a long time. The privilege of being able to get and afford this loan is not lost on me but debt is debt and I would like to pay off this debt earlier rather than later.

So, you have also made a decision that you want to repay your mortgage early, what are some of the things that you need to consider? Below I list below a few pros and cons, this list is not exhaustive but just some of the things you need to consider before you start your plans to repay your mortgage early.

Pros of paying off your mortgage early

Own house outright – when you buy a house with a mortgage you own the house sure but so does the lender depending on the deposit you put down. I put down about 47% deposit so I own 47% of my home and the bank owns the rest and my plan is to repay it off so I can own the house outright.

Peace of mind – paying off the mortgage gives you a peace of mind, you don’t have to worry about making monthly payments and a chunk of it going towards interest instead of bringing the balance down faster. For the first year of mortgage repayments I paid £5000 in interest which is deflating to see how much interest you pay compared to the principle.

Debt free – paying off the mortgage for me will make me completely debt free, I don’t currently have any consumer debt and only have the mortgage left to pay off so once I pay off my mortgage I would be completely debt free.

Save more for retirement – one of the reasons I worked hard to clear my consumer debt is to ensure I have enjoy money to enjoy now but also save for my retirement. No one knows what the future will look like but we know that inflation will definitely after the value of our coins so I want to save a little bit more than my national contributions. I know for my personal retirement, I am investing the money in mutual, funds so it can grow and give me a nice nest egg once I retire in about 30 years time (God willing).

Cons

Early repayment penalty – this is something I only found out after re-reading my mortgage annual statement. For most mortgage/loan lenders, they often have early repayment penalties. Make sure you know how much your lender charges for early repayment. For those in the UK, before you answer the question – should you pay off your mortgage early, make sure to check the costs associated with early repayments. For the US, repaying your mortgage might mean you lose your tax relief so it’s something to consider.

Impact on your emergency fund – when you choose to repay your mortgage you need to ensure you have a fully funded emergency fund that is what you will be dipping in for any future emergencies as there won’t be any money left to handle new issues since every penny will be thrown at paying off that mortgage. And when you use your emergency fund, you need to refund it back otherwise this will open you up for more consumer debt.

Saving for kids college – if your heavy focus is to repay the mortgage early you might not have enough left over to save for the kids future college funds. I personally don’t yet have kids but know that once I do, I might reduce my contributions towards paying off the mortgage but hopefully not stop completely.

Other debt – if you have other debt then it’s not a good idea to focus on repaying a mortgage especially since it probably isn’t your highest interest rate (for those following an avalanche method) and it will take you many years to pay it off. I think it is best to focus on paying off all your other debt and once you are debt free you can then allocate those funds to clearing your mortgage.

I am sure everyone has a goal in life but is paying your mortgage off early a good idea? Personally, I think if you are debt free as in no consumer debt then go ahead and start making those repayment.