Pay Off Your Mortgage Early: Good Idea?

Can a mortgage be paid off ahead of schedule, and is it a good idea?

Those are two separate questions.  Most mortgages allow early payoff, but you should make sure you understand any payoff terms or restrictions in your specific loan. Some loans have prepayment charges.

People sometimes accelerate payoff by sending extra money each month, or with an extra yearly payment.  If you do this, indicate in writing that the excess funds should be applied to reducing principal. Record the payments and instructions!

Whether paying off ahead of schedule is in your financial interest is a complicated calculation. If you have the ability to do it, and prepayment penalties aren’t an issue, you will reduce the interest you pay over time. But reducing a low-interest-rate loan by taking funds from higher-interest-rate investments may not be in your interest.  (Note: Payment used against principal is not tax-deductible!)

Your lender is one source of advice, but financial planning for you is not their core business. If you have the option, get advice from a financial planning professional when considering something like early payoff.

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