Paying off a Mortgage Early – Pros and Cons!

Posted on September 19, 2014 · Posted in Finance, Trading Loan And Mortage

It is natural for any person to feel uneasy and worried if he has in his hands a mortgage to settle. He will, therefore, try to settle the mortgage at the earliest so that he will be free from worry.  But then, you should ask yourself a question i.e. is it advisable to pay off a mortgage loan early. While doing such a thing will prove advantageous to some people, it may be just the opposite for certain people; it may be disadvantageous for them. In order to ensure that such a paying off will be of benefit to you, you have to take into consideration certain factors.

Since the sub-prime crisis has almost come to an end, there are many people who reap the benefit of enjoying the ‘problem of plenty.’ Only these people may be inclined to pay off the mortgage loan early because there is no need for them to worry over the liability. In fact, they can have stress-free life. Here too, some people have a different view in the matter. They look it from an entirely different angle. They feel it will be prudent not to pay off the mortgage loan and, instead, that money could be invested in areas like stock market, etc. By making such investments, they feel, they will get better returns. They will be deprived of such returns if they utilize the funds to pre-close the mortgage loan.

Advantages in preclosure of mortgages

It is a well known fact that once you pre-close the mortgage loan, your monthly payments towards interest on the loan will not be there. This helps you to enjoy a somewhat better life-style. The saving you are making can be used for meeting necessary needs. With this amount, it may be possible for you to even consider making investments in other fields. If you do not pre-close the mortgage loan but continue it for considerable length of time, you have to necessarily be earning right through the period. If, unfortunately, you happen to be out of employment for a period, the issue of this mortgage will be a thorn in your mind.  Pre-closure of your mortgage loan confers on you another benefit. It will enable you to improve your credit.

Disadvantages in preclosure of mortgages

What are the important minus factors in respect of pre-closure of a mortgage loan? First, the interest rate for a mortgage loan is the lowest. This fact leads many people to refrain from closing of the loan early. These people feel that pre-closure option should be kept for the end; that is, this option should be considered only after you have settled all your other dues. Tax benefits that you have been enjoying on mortgage dues, will not be there once you close the mortgage. And if you happen to be in the ‘large income’ category, tax deduction on your mortgage brings down your tax liability to a great extent.

By investing the money, with which you want to pre-close the loan, in various avenues, which will bring you regular returns to cover the monthly payments; besides the profit you will be making through such investments will be immense. But, is it so easy to pre-close a mortgage loan? No, certainly it is not that easy. It needs perfect planning in the matter of spending as well as saving. Then only you can save enough money to pre-close the mortgage loan. By adopting such methods, you will be in a position to bring down the term of your mortgage. There is an option called ‘bi-weekly approach’. If you opt for this, you will be required to make 26 payments in a yea, in place of the normal 12 payments. This is beneficial since the duration of the mortgage is brought down considerably.