Key takeaways
Peace of mind, saving on interest and building equity are three benefits of paying off your mortgage.
Downsides include opportunity cost, reduced liquidity and removing a major tax deduction.
A financial professional can advise you on the most appropriate options for your financial situation.
If you have the extra cash, the thought of paying off your mortgage early might seem like a no-brainer. But is an early mortgage payoff always the right move? Ryan Peters, Wealth Planner with U.S. Bank Private Wealth Management, shares how to determine if it’s right for you to pay off your mortgage or invest extra cash in another way.
Paying off your mortgage comes with some undeniable perks. When you no longer have that monthly payment hanging over your head, you’re likely to benefit from the following:
By eliminating the cost of your monthly mortgage payments, you’ll also free up funds to invest in other financial goals.
Though paying off your mortgage early may seem like a win-win scenario, there can be potential downsides. It’s important to examine any potential penalties or negative financial impacts before taking the leap. These can include:
Like many financial decisions, deciding whether to pay off your mortgage early is a highly personal choice. Weighing the pros and cons involves knowing what matters most to you, as well as your goals and priorities for the future.
“Especially if someone is retired and without steady employment income anymore, if they have the means to pay off their mortgage, it might feel like a weight off their shoulders.”
Ryan Peters, Wealth Planner, U.S. Bank Private Wealth Management
If you’re thinking about paying off your mortgage ahead of time, there are a few questions you should ask yourself first.
Taking everything mentioned above into consideration, it’s important to note that there’s more than one way to go about paying off your mortgage early. “There are multiple ways you can make extra payments and shorten the length of your loan,” says Peters. “It depends on each person’s circumstances.” Here are a few common approaches:
If you’ve decided that paying off your mortgage early doesn’t make sense for you, there are still ways you can use extra cash in a way that supports your financial goals. Consider options like contributing more to your retirement accounts, investing through a brokerage account, or contributing to a high-yield savings account for specific savings goals.
“Depending on your age, you may want to contribute more of your earnings to your retirement accounts, such as an IRA or 401(k,” says Peters. “If you’re already contributing the maximum amount allowed, redirecting your additional funds to a brokerage account would diversify and improve your financial outlook in retirement, especially from an income tax perspective.”
You might also contribute to accounts dedicated for savings goals like a college fund for your children or grandchildren. Ultimately, how you choose to leverage extra cash is a highly personal decision and one that will depend on your overall financial situation.
Peters suggests looking at the goals and priorities you want to accomplish later in life and using that to help guide where you put your money.
Above all, the decision to pay off a mortgage early hinges on your total financial picture. Carefully consider the potential pros and cons, as well as your financial goals and priorities, before deciding if it’s the right path for you. And if you need help, a financial professional can help you create a personalized plan that ensures you’re spending your money in ways that help you lead the life you desire.
“Everyone’s circumstances are different, whether it’s your age, income, or when you purchased your home,” says Peters. “Speaking with a professional can help you create the best plan for your individual needs.
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