Should you pay off your mortgage early?
With employment levels rising and average incomes growing in various industries, more people are experiencing the perks of a vibrant economy. Home sales continue to impress, as noted by organizations like the National Association of Realtors, and other big-ticket purchases are up.
Given more money is in many Americans' pockets, some homeowners are likely considering whether it's worth their while to pay off their mortgages early. Conventional wisdom might suggest as much, thereby freeing up funds to go toward other uses. However, declaring earlier-than-anticipated mortgage freedom may not always be the best investment.
So, how do you decide if the move is right for you? These mortgage payoff tips can help you determine the right course:
Assess where you stand financially
Perhaps the best way to assess the situation comes from understanding your current financial obligations. Are you still making payments on a new automobile? Are you planning on making a major purchase? Do your regularly occurring expenses command a substantial share of your salary?
If the answer to these questions is "yes," then getting out from under your mortgage can pay off - quite literally, noted Chris Chen, a certified financial planner based in Massachusetts. One less expense also makes room for emergencies, which virtually never come at a convenient time.
"If you run into difficult financial circumstances, having a lesser debt burden reduces your break-even for life expenses," Chen told NerdWallet.
Consider your mortgage type
The type of mortgage you own also plays a role, financial experts advise. For instance, if you have a 15-year fixed-rate mortgage locked in when rates were low, the terms may be such that you're better off maintaining your current payment schedule and investing your other available funds. Alternatively, you may be in a position where it makes sense to refinance your mortgage to a lower rate, which can help you pay off your mortgage sooner than you would have otherwise.
Another aspect to examine - which isn't the same for everyone - is taxes. If you're someone who prefers to itemize your tax deductions in April when returns are due - rather than the standard variety that most people choose for the sake of simplicity - maintaining mortgage debt may make sense because it keeps you eligible for the mortgage interest deduction. This reduces your tax liability, with the current standard deduction averaging $24,000 for married people and $12,000 for individuals, according to the most recent figures from the IRS. You're, of course, no longer eligible once completing your mortgage payments.
Is retirement something you're considering? According to a recent poll done by Gallup, a slight majority of Americans - 51 percent - believe they'll have enough money to pay for it. Depending on how close you are to exiting the workforce - and whether you want to still be paying for your mortgage with less money coming in - should also be carefully considered in this decision.
No financial decision should be made alone. Talk to your financial advisor or mortgage professional to find out whether an ahead of schedule mortgage payoff makes sense.