Generally speaking, people are less than enthusiastic about being in debt to others. As a result, it isn’t uncommon for homeowners to think about paying off their mortgage sooner rather than later. However, while this can be a tempting prospect for a lot of people out there, there are some potential downsides that should cause interested individuals to evaluate their decisions with extreme care and consideration. Here are some reasons why people should think twice about paying off their mortgage:
Early Payment Fees
Lenders set the interest rates as well as other loan conditions so that the resulting loans will be profitable for them. As a result, when a borrower pays off a loan earlier than expected, that tends to have a negative effect on the lender’s expected earnings. Due to this, some lenders will have early repayment fees to protect themselves from such possibilities. In some cases, early repayment fees can be so high that interested individuals won’t actually save themselves any money by making their payments early because their potential savings will be eaten up by the fees. Since early repayment fees exist, people who are thinking about paying off their mortgage should check to see if their loan contracts come with these as well as similar penalties for early repayment.
The single biggest problem with paying off a mortgage as soon as possible is the missed opportunities. Simply put, someone who chooses to use their money to pay off their mortgage as soon as possible won’t be able to use that money for other purposes. Sometimes, this can make it difficult for interested individuals to make progress towards their financial goals. Other times, this can cause them to miss out on something that they have set their eye upon for some time. Summed up, each extra dollar spent on paying off a mortgage is a dollar that could have gone towards some other use, meaning that interested individuals should never forget to account for what they will miss out on.
Less Financial Depth In Case of Emergencies
No one can predict the future. As a result, it is always possible for someone to be caught off-guard by an unexpected occurrence, which is why interested individuals should put serious effort into preparing for potential emergencies. When people choose to pay off their mortgage as soon as possible, that reduces the amount of cash that is available to them for use for other purposes. In turn, that means if they run into an emergency of some kind, they won’t have as much money to cover the costs, thus increasing their chances of experiencing worse consequences as a result of such occurrences.
Might Not Be the Most Efficient Option
Paying off the mortgage might not be the most efficient option for someone with more than one form of credit. Generally speaking, people who want to get out of debt as soon as possible should seek to pay down their outstanding balance with the highest interest rates before moving on in sequential order. As a result, interested individuals might want to focus on something else before moving on to their mortgage. With that said, it is interesting to note that other people might have other ideas in mind. For instance, people who are unsure about whether they can actually commit to such a course of action might want to focus on paying down the smallest outstanding balance before moving on to the rest. Something that can be very useful because each balance that has been eliminated will provide them with more determination to pay off the rest of their outstanding balances.
Lost Tax Benefits
People who pay off their mortgage as soon as possible won’t be able to deduct the interest that they have paid on their mortgage when tax time comes. With that said, interested individuals can expect to see more of their payment going towards interest rather than principal in the earlier part of their loan term. Due to this, this issue is more relevant in the earlier part of the loan term than in the later part when most of the payments are actually going towards paying down the principal.