The Top 3 Reasons NOT to Pay Off Your Mortgage Early - When you’ve got debt hanging over your head – especially when that debt is as big as a mortgage – your gut reaction is probably to get it paid off as soon as possible. However, that’s not always the best idea. In fact, there are 3 reasons why you SHOULDN’T pay off your mortgage early:
1. You’ll lose a valuable tax deduction
No one likes handing over extra money to Uncle Sam, and that’s exactly what you’ll wind up doing if you pay off your mortgage sooner rather than later. After all, the interest you pay on your mortgage every month is a valuable tax deduction. (In fact, it’s a big incentive for people to buy homes in the first place!) But once your mortgage is paid off, all of that money will count as taxable income.
2. The extra money you would spend could be of better use elsewhere
In order to pay off your mortgage early, you’d have to pay extra money to your lender every month. But, you could actually put that money to better use by stashing it elsewhere – like in a 401K or in a college fund for the kids. That way, you’ll get to save some money without having to pay federal and state taxes on it first. Or, set up some other interest-bearing account that gives you instant access to the money if you ever need it. That way, your money will actually MAKE you money, instead of just going towards extra mortgage payments. Then, if something unforeseen happens – like a trip to the emergency room, a pink slip, or a scary medical diagnosis that your insurance doesn’t cover – you’ll have a safety net of sorts. Or, if you’ve got some extra money lying around (like a recent bonus from work), and you really feel the need to pay down some debt with it, use it to pay off higher-interest debts – like credit card debt. Since the average American has an APR of 13%, you’re much better paying off your credit card bills than your mortgage. Sure, your mortgage principal is a whole lot bigger than your credit card balance, but you’re wasting money at a much faster rate on your credit cards!
3. You can save money on your mortgage without paying it off fast
If you feel like your mortgage has become a major financial drain on the family budget, look into refinancing. After all, mortgage rates have never been lower than they are right now – and if it’s been years since you got your home loan, you’re probably paying double or triple what you need to in interest! Yes, you’ll have to pay closing costs on a new loan in order to refinance, but they’ll be a whole lot cheaper than trying to pay off your entire existing mortgage over the next few years! After all, even cutting a fraction of a percentage point can save you thousands of dollars in interest over the course of a year, so imagine how much you could save if you were able to cut out a few percentage points!
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