Paying your mortgage off early can be a difficult decision for many Canadians. It can provide more financial flexibility and less stress by paying it off sooner. Before jumping right in though you should decide what the advantages and disadvantages would be to paying it off quicker.
Pros of Paying Off Your Mortgage Early
One of the biggest advantages to paying it off early would be your interest savings over the course of the mortgage. Because mortgages generally constitute a large sum of money and are usually paid off over many years, interest can significantly increase the total amount you pay back. If you have the ability to shorten the amount of time the loan is paid over, the amount of accrued interest will decrease, potentially saving thousands of dollars.
Your monthly expenses will be much lower once your mortgage is paid out as you no longer have to account for that payment. This will allow for added flexibility in your monthly budget, allowing you to allocate these funds elsewhere. Investments your children’s education, or entertainment could be where this money is now allocated.
It is a major goal for many people to be mortgage free and own their home outright. They might consider it a milestone and could reduce stress. You no longer have to be concerned about how you will make the payments in the event of job loss, economic downturn, or health issues.
Cons of Paying Off Your Mortgage Early
You might see higher returns if you were to invest your disposable income as opposed to paying off your mortgage early. History tells us that the return on stocks is consistently higher than what you will save on interest by paying your mortgage out early. You could potentially miss out on some great investment opportunities if your sole focus is paying off your mortgage early.
Once you put additional money towards your mortgage it is now tied up as equity in your home. It could bee potentially more difficult to access that money if you need access to quick cash than if it were in a savings account or other investment account.
Making the Decision
It is definitely a personal decision whether you pay off your mortgage early. You should consider many aspects – financial situation, goals, and risk tolerance. It's essential to consider your overall financial plan, including retirement savings, emergency funds, and other debts. For some, the peace of mind and financial freedom of being mortgage-free are paramount. For others, maximizing investment returns and maintaining liquidity are more critical.
Before making any decisions, it might be beneficial to speak with a trusted financial advisor or a mortgage professional such as myself. They can help you assess your financial landscape, compare the potential returns of different strategies, and decide the best course of action for your specific circumstances.
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