Being mortgage-free is a goal for many homeowners, taking away a huge household expense and leaving them with a property that is 100% solely theirs. But is being mortgage-free as good as we all think it will be? Let’s take a look at some of the pros and cons.
The Pros of Being Mortgage Free
One less household expense
Perhaps the biggest appeal of being mortgage-free is the fact that you no longer have to make mortgage repayments, reducing your household expenses significantly. According to data from the U.S Census Bureau, the average American household pays a $900 monthly mortgage payment, but regardless as to whether your mortgage is $200 or $2000, its money you could then use elsewhere. For most Americans, their mortgage is their single largest household expense, and by eradicating this debt they are then able to live more affluently in their later lives.
No more interest payments
Perhaps the most frustrating part of any home loan is the fact that you end up paying so much in interest on top of the loan amount. No mortgage = no interest payments – hurray! Even if you can’t get mortgage-free, reducing the amount of your home loan will in turn reduce your interest repayments.
Better profits from your home
Another key benefit of becoming mortgage-free is the chance to reap the full benefit from the sale of your home, with 100% of the profit going to you, and not into your mortgage. For those looking to downsize, this means a chance to put away savings for retirement or the future, and for those looking to upsize, it presents a chance to get more house for your buck with just a small mortgage to show for it.
It could harm your savings
When people are rushing to pay off their mortgages, they tend to put in money that they could otherwise have saved. If retirement is approaching and this is your reason for wanting to become mortgage-free, but you still have a way to go on your mortgage repayments, then in some cases it can make more sense to release the equity from your home with a company such as Altrua Financial.
You may miss out on tax savings
Depending on your employment situation, mortgage interest tax deduction could be the only thing stopping you from falling into a higher tax bracket. This means that by paying off your mortgage you could potentially be increasing the amount of tax you need to pay. Although this alone shouldn’t be a reason to avoid paying off your mortgage it is something to consider as it will affect your expenses.
So should you aim to pay off your mortgage?
In most situations, the answer is always a resounding yes. Becoming mortgage-free is liberating and so long as the repayments do not impact your emergency fund or your retirement plans, then it is often the single best investment that you can make for your future. It isn’t going to always be possible for everyone, but in some instances, if you come into a large sum of money, it can make sense to pay off early (there can be some penalties for doing so; just another thing to bear in mind).
If your current mortgage feels like you could be paying more off each month, or equally, would prefer to pay less each month for a longer term, then looking for online mortgage calculator tools can be a good idea. When you have a mortgage already, you can switch it, depending on the terms. So if there is a better option out there for you, then it can make a big difference to your life. Something to definitely consider, if paying it all off isn’t an option right now, but you want to do something else to improve your current financial situation.
Are you mortgage-free or do you aspire to be so? Let me know in the comments.