Many people, these days, like the idea of paying off their mortgage early. It can be a fantastic feeling, having no debt, but it may not be the best financial decision.
Paying a mortgage back early will mean that you will have your loan for less time. This can be agreat thing, because it means that you will no longer have that interest and debt to worry about each month. However, there can be advantages to keeping the mortgage.
It is important to calculate the costs of paying the mortgage back early and see whether it really is a good idea. This means that you need to look in to the costs of doing this as well as the advantages. Firstly speak to your lender and they will explain whether there is a penalty for paying it back early and how much this is. Then you need to think about the cost in interest of keeping the mortgage. It is difficult to predict what interest rates might do and so it may be worth assuming they stay constant. The money that you are using to pay back the mortgage early, could make you interest if it was invested. Find a good investment that you would be prepared to put it in to and compare that with the mortgage interest cost.
Normally loans cost more than savings accounts and so it may seem obvious that paying it off will be cheaper. However, if you tie your money up long term and you have a low mortgage rate, it is possible to do better. Therefore you do need to do these calculations as they will not be a waste of time.
There is also a risk factor of paying it early that you need to consider. What if, after you have paid off the mortgage, you get short of money. You could have used some of that you saved towards paying it back, but once it is gone you will have to borrow it instead. This could be costly and so it is worth thinking whether it would be better to not pay it back.