If you have a mortgage, you have asked if it is worth it to pay off mortgage early? This thought is normal. No one likes to be in debt for a day much less for 30 years. We all would like to have the freedom to do as we like with our money, and paying a mortgage is not one of those things. But should you pay off your mortgage early? The answer, it is a personal decision.
The Financial Perspective
When you ask if you should pay off mortgage early, you will hear a number of important things to consider. These considerations include the stock market, the mortgage interest deduction, and the potential safety net of having money on hand.
The stock market argument goes something like this: if you have a mortgage, by paying it off early you will essentially be getting the interest rate of the mortgage that you paid off as a return. As a simplistic example, if you pay off your mortgage that has a 3% interest rate 10 years early, you will have earned 3% per year for that 10 year period. Essentially, the 3% that you did not have to pay. You will then be told that if you had place the same amount of money that you used to pay off your mortgage in the stock market, you would have earned 8-10%. This 8-10% is in reference to the average stock market return over the past decades.
As such, the upshot of the stock market argument is that by paying off your mortgage early, you would be losing out on the difference between the average stock market return and your mortgage interest rate.
Further, you will be informed that your mortgage interest payments are tax deductible. But you would have already known this as your taxes are due yearly and you would have taken advantage of this deduction based on qualifications.
Next, if you pay off your mortgage early, if you ran into hard times, your money would be locked up in your home. The fact is, houses or the money held in your home is not as easily transferable as money in the bank. As such, if you lose your job, or run into financial difficulties, it would be a bit more difficult to unlock the money in your home than going to the bank and withdrawing what is needed.
These are all considerations that must be contemplated. As such, from a purely financial perspective, the answer to the question of whether or not to pay off mortgage early looks to be a no.
The Counter To Pay Off Mortgage Early
Why would you ever answer yes to whether or not it is worth it to pay off mortgage early? The answer, life is not as simple as a mathematical calculation. Further, the only thing certain in life is uncertainty.
While there is a historical increase in the stock market on average, we do not know what the future holds. Will the next 30 years see the growth of the last 30 years? It is uncertain. The stock market is risky and your mortgage payment is always due. This is to say that if you lose money in the market, your mortgage is still due. No matter what happens with the stock market, by paying off your mortgage early you have a guaranteed return. I am sure you have heard the saying “a bird in hand is worth two in the bush.”
In view of the mortgage interest deduction, will this deduction continue? Will you continue to qualify for this deduction? This also is unknown. Change is a constant, we just do not known.
Peace Of Mind Is A Reason To Pay Off Mortgage Early
When assessing if it is worth it to pay off mortgage early, consider your peace of mind. Paying off your mortgage early may not make financial sense if you pay off your mortgage early and miss out on a significant stock market return. However, nothing beats being able to sit back in your home and know that it is paid for. Peace of mind.
By paying off your home early, you will not have a mortgage payment, therefore you can use that money to spend as you see fit and you will no longer need to worry much about foreclosures or repossessions. Pay your taxes and related utilities and keep on living. This is peace of mind.
What is your peace of mind worth? When assessing if it is worth it to pay off mortgage early, this is the real question. How much better would you sleep knowing that you have no mortgage payment.
In the end, it is your decision and it is about what you are comfortable with. In some ways, you can pay more on your monthly mortgage payment to pay off your mortgage earlier. You may find a middle ground and pay more on your monthly mortgage payment but also invest a portion. It is also your decision to not pay any extra at all toward your monthly mortgage payment. It is about your comfort level and what is good for you and your family.
Conclusion
If you have a mortgage, you have asked if it is worth it to pay off mortgage early? This thought is normal. No one likes to be in debt for a day much less for 30 years. We all would like to have the freedom to do as we like with our money, and paying a mortgage is not one of those things. But should you pay off your mortgage early? The answer, it is a personal decision. On the journey to financial independence, sometimes, peace of mind is more important than financial returns.
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