While owning a home is almost everyone’s dream, with the idea of low mortgage interests, the idea of taking out a loan when buying a house has become more idealistic. Of course, paying up mortgage loans can be quite a relief. However, there are some disadvantages you just may not know about with getting rid of your mortgage before its due date.
Here are a few…
Disadvantages Of Paying Of Your Mortgage Too Early
#1. Minimizes Liquidity
Paying off your mortgage leaves you in a dangerous state as any cash that comes into your hands goes into paying off your mortgage, with little left to cover any emergency expenses.
What’s worse is if your source of income is your job and you suddenly lose it. Where will you get money for all your necessities as all your cash has gone into paying off your mortgage?
Therefore, the best thing to do is to create an account and save all the money you intend to pay your mortgage with. This way, should anything happen, you’ll have something to fall back on.
#2. Possible Pre-Payment Penalties
Some mortgage contracts have a clause that refers to a mortgage prepayment penalty, popularly known as a “Prepayment Penalty Rider”.
This provision typically states that should a mortgagee want to pay off a mortgage early, more money will have to be paid at a go.
Normally, this penalty is implemented should a borrower want to pay off within the few early years of the loan term. This is reflected as a percentage of the remaining balance during the prepayment process.
#3. Low Mortgage Rates
In the late-80s and early 90s, average interest rates on home mortgages broke through the normal 10%. However, in this day and age, mortgage rates are at a low.
With interest rates taking a plunge yearly, some homeowners have decided to pay off mortgages with a snail’s pace.
It is now common for borrowers to go with this flow, especially those who have other financial priorities on their necks.
However, despite these drawbacks to paying off a mortgage loan early, there are a few positives.
Benefits Of Paying Off Your Mortgage Early
#1. Extra Money For Other Ventures
Getting rid of your mortgage gives one enough wiggle room to focus on other things. Instead of money flowing from your hand to mortgage payments, it could easily be used for other things such as investing in a startup!
#2. Emotional Freedom
Aside from having enough cash for other expenses, paying off a mortgage before it reaches its full term may serve as a relief or may give a sense of emotional freedom.
No more being pulled by the mortgage’s rope.
In short, paying off your mortgage early depends on you. Weigh the outcome and see which one works best for you.