Early mortgage pay off is like eating an extra slice of cake every day; it sounds delightful at first, but comes with unintended consequences.
There’s a reason the food pyramid exists, right? Sometimes too much of a good thing turns bad. Sure, paying off your mortgage early means you’ll save money several years down the road, but it may not be the right decision for you right now.
Let’s jump into why many Americans choose not to pay off their mortgage early.
1. There’s Nothing Like Cold Hard Cash
If you take any piece of mortgage advice away from this article, let it be this: cash is king.
You don’t need us to tell you that life is full of unexpected events. Instead of using your extra cash to pay off your mortgage early, consider setting it aside in an emergency fund. Vanguard Investing recommends that every person saves about 3-6 months’ worth of expenses.
Paying off your home loan early might be a good long-run financial decision, but it’s only for those who are prepared for every short-term tragedy. Once you put your money into your mortgage, there’s no way to take it back out again, unlike with investing or saving.
2. Mortgage Pay Off Could Impact Credit Score
The world of credit is a confusing one that few have been able to master. You would think that paying off your mortgage debt would be a good thing, right? That’s not necessarily the case when it comes to your credit score.
Let’s say you have three lines of credit: a home loan, a credit card, and student loans. If you pay off any one of these, you drop down to two lines of credit.
Removing a line of credit will lower your credit score. It may not be a very sharp drop, but if your score isn’t the best, then it might cause some trouble.
To learn more about your home equity line of credit, or HELOC, check out our helpful article.
3. Other Loans Take Precedence
According to this article from CNBC, the average American has over $90,000 of debt. This number is split between not only your house payment but car payments, student loans, credit card bills, and other loans.
Any California mortgage advisor or Carlsbad loan officer will tell you that the loan with the highest interest rate ought to be your highest priority. For many people, this is not their mortgage.
Before you consider paying off your mortgage early, you should eliminate all other loans that have a higher interest rate.
4. An Uncertain Economy
If the dumpster fire of 2020 taught us anything, it’s that economic stability is uncertain.
Having a fixed mortgage payment means that even if the value of the dollar fluctuates, the amount you pay each month will not. This is a relief! Due to inflation, what feels like a hefty bill now may not feel so hefty five years down the road.
Looking for a Mortgage Expert in CA?
Paying off your home loan early sounds attractive, we understand. Before you jump into that decision, let our experienced mortgage advisors give you a second opinion!
Contact us here with all of your questions and concerns. While we’re getting back to you, check out our other blog posts.