A mortgage loan is a fundamental instrument for those seeking to acquire their own home. As one of the largest credits that we can acquire during our lives, it is normal to have doubts and feel a little worried when acquiring one, in addition to having the urgency (in many cases) of wanting to pay as soon as possible to forget about that debt and to be able to enjoy our house (and our income) without that pending.
Is it convenient for me to pay my mortgage loan ahead of time?
You probably think that the answer is obvious and should always be YES, but not everything is black and white, and it depends on your particular situation as well as the terms of your mortgage.
If you are thinking of liquidating your mortgage credit to get rid of that debt once and for all, here are some considerations to help you make a decision:
Reasons to pay your mortgage early
- Your risk tolerance profile is low. If you are not one of those who prefer to make risky financial decisions (with the understanding that these are the ones that generally bring the best returns), then it makes sense to pay off your house instead of using the money for this type of investment.
- You don’t want to be saddled with that debt when you retire. If, for many, saving for retirement is a complicated and stressful issue because you don’t know if it will be enough to live on, now imagine adding to that the stress of having debts during that stage.
- You want to pay no interest whenever you can. If you hate paying interest for whatever reason and the idea bothers you, then getting rid of this debt (and any others you have) will make you happy. Of course, before you must inform yourself about the implications of making advance payments and make sure that they go directly to the capital you owe.
- Your priority is to have peace of mind. If you feel overwhelmed by the constant reminder that you have a large debt on your head, there is a good chance that paying your mortgage early will help you sleep better at night. Why is that priceless?
Reasons NOT to pay your mortgage early
- You are behind on your financial goal of having an emergency fund. Thinking about prepaying your mortgage or paying it off in full early when you haven’t taken care of this basic financial need sounds a bit counterproductive. Remember that no one can predict the future, so it is very important to have an emergency fund.
- You have other financial obligations with higher interest than your mortgage. If you have debts that are getting more expensive than your house payment, the ideal is that you attack these first before thinking about paying your mortgage early. Remember that this technique to pay your debts makes a lot of sense because, in the long run, you will be paying less money in interest and penalties, and other undesirable payments.
- If you do not have health and/or life insurance. Are you the head of your household and don’t have health or life insurance? Instead of giving advance payments, you must cover these needs first, because if you fail, who would take care of the basic needs of the family and, of course, the mortgage payments?
- You have an opportunity to get a higher rate of return. If you have some experience with investments and you have the opportunity to invest your money in a business opportunity or some other financial instrument that promises better returns than the interest rate you are paying on your mortgage, then it does not make sense to get rid of your debt and pass up those opportunities.
As you can see, in the end, there are multiple reasons to consider when making a decision of this type, and beyond following what is right or wrong according to what other people think, what you should do is take the reasons that are most important to you and based on them make a decision. Not all of us have the same tastes, the same priorities, or the same concerns.
Analyze your options and be guided by what makes the most sense to you, and if after that you discover that you are ready to pay your mortgage early, it means that your finances are healthy or on the way to being even more so, so congratulations!