While millions of people are trying to figure out how to pay their mortgage, there are a large group of homeowners who are debating whether or not they should pay theirs off early. People who have owned their home for over a decade are finding their mortgage situation to be in really great shape, especially compared to the payments and rates others are closing on right now. If you purchased your home over a decade ago, not only do you have a very low-interest rate, but you also probably have very low payments.
If your home is worth $500,000 today, there’s a good chance that you paid half of that or less when you bought it. That option to cash out is very appealing, especially if it was your primary residence and you get a break on the taxes. However, while you are in a great spot with your mortgage, you still are not sure if it makes sense to pay it off all at once or keep making your monthly payments.
When Keeping A Mortgage Becomes A Decision
Believe it or not, there are millions of Americans who owe less than $200,000 on their mortgage and many of them have the opportunity to pay it all off within the next year. Some of those options come from retirement investments and reaching eligibility age. When you have access to your retirement expenses, you have a unique opportunity to cut all your monthly costs down by paying off your debts, including your mortgage. But should you?
Breaking Down Your Options
Everyone has to make their own decision in these cases and it’s always a good idea to speak with a relator and financial experts who can advise you on your best options. This is where understanding your finances is important and what your options are. Everyone is going to be different which is why you need to take your factors into account as well. Here are some of the options to consider:
- Sell now: The favorite option for everyone is to sell now and take a huge profit. It’s not a bad idea, but the first question you have to ask yourself is where would you live? This is where again, everyone is different. If you have an easy and affordable solution to that problem, then you have an advantage. If not, you need to take that into consideration before going with the selling route.
- Pay it off early: Paying your mortgage off early will eliminate the monthly cost of not only the loan, but the payments. It also can help eliminate all debt from your books, giving you the financial flexibility you need in your retirement.
- Invest in the property: Does the property need a lot of work? If so, this is where another decision has to be made. Invest in the property or sell now? Investing right now will cost you a lot of money, but you could have the home of your dreams with a low mortgage payment at the same time.
- Invest elsewhere: You have the funds and low monthly costs. If you are able to and want to, investing the money elsewhere does make sense. In some cases, people use their savings combined with low monthly payments to invest in other properties and rent them out or flip them.
Knowing your options also comes down to knowing what your finances are. What type of funds do you have, what kind of money are you looking at coming in each month and will that be something you can bank on in the future?
Know Your Finances
When you do not know your finances, you run into trouble making financial decisions. For example, if you have 10 years left on your mortgage but you are living paycheck to paycheck, you have fewer options but selling the home could provide you with financial flexibility and freedom from debt. However, the question of where you will live comes up again. Your finances need to dictate these decisions but you need to think of your options and what solutions they offer you if you go a certain direction with the property.
Benefits Of Keeping A Mortgage
While you may not think that it’s smart to keep a mortgage, this strategy has helped thousands of people finance their lives after the age of 50. If you are in a situation where you have an affordable mortgage and more than half the initial loan paid off, consider keeping the loan because of:
- Lower interest: A larger percentage of your mortgage payments went towards the interest you owed on the loan than the principal loan amount during the first decade of your payments. This is how lenders get their money back first, knowing the property will always help them cover the rest of the loan if needed. Because your payments are now going more towards the principal, you are not paying as much in interest as you thought.
- Flexible finances: While you do have a monthly payment on your house, if you are able to keep your costs low, you can utilize the extra funds you have each month to either make upgrades on the property or invest in other areas. The added bonus is that if you are able to increase your income, your expenses will not increase, increasing your monthly profit margins.
- Cheaper than financing: If you are considering making upgrades to the property like a new roof or pool, paying for it directly will be more affordable than borrowing the money. Because the rates for borrowing for those things would be much higher than what you are currently paying on interest for your mortgage, you may be better off using your money there.
- One simple monthly payment: People forget that once they pay the mortgage off they still have to cover their insurance and taxes. If your mortgage payment includes those expenses, you may not be saving as much as you expected once it’s paid off.
Know what your numbers are, what they will be with each option and how to best strategize for what direction you want to move forward in. The property gives you several advantages but you need to be aware of those advantages in order to best utilize them.
Getting Rid Of The Mortgage ASAP
For those who are not happy with debt and monthly costs, getting your mortgage paid off as soon as possible does make financial sense. If you can eliminate your mortgage as early as possible, you will save thousands on interest. However, do not overlook the value of also being debt free, especially if you want to buy another property or simply improve on your monthly cost of living.