It all comes down to what you are most comfortable with. Whether you pay off your mortgage or you invest, both can help you increase your assets. The real difference lies in reducing debt versus diversifying your overall wealth.
Paying it off typically requires a cash outlay equal to the amount of the principal. If the principal is sizeable, this payment could potentially jeopardize a middle-income family's ability to save for retirement, invest for college, maintain an emergency fund, and take care of other financial needs.
Paying off your mortgage early can be a wise financial move. You'll have more cash to play with each month once you're no longer making payments, and you'll save money in interest. Making extra mortgage payments isn't for everyone, though. You may be better off focusing on other debt or investing the money instead.
But if you want to live a life of financial freedom, then it's important to shed all of your debt, says Shark Tank personality Kevin O'Leary. In fact, O'Leary insists that it's a good idea to be debt-free by age 45 -- and that includes having your mortgage paid off.
What is the biggest reason not to pay off my mortgage early? In short: opportunity cost. The money in your savings account is yours to do what you like with, but once you have paid off the mortgage that is it.
You might not want to pay off your mortgage early if …
Your cash reserves are low: "You don't want to end up house rich and cash poor by paying off your home loan at the expense of your reserves," says Rob. He recommends keeping a cash reserve of three to six months' worth of living expenses in case of emergency.
If your mortgage rate is high, or you have an adjustable-rate mortgage that has already reset to a higher rate, it probably makes sense to pay off your remaining loan balance before you retire, says Edmisten at Next Phase.
Ready for the answer? And the answer is….. 21%! While most Americans expect to have their mortgage paid off by retirement, more than one in five of those individuals are still paying off their homes at age 75.
Paying off your mortgage early can save you a lot of money in the long run. Even a small extra monthly payment can allow you to own your home sooner. Make sure you have an emergency fund before you put your money toward your loan.
It's often more beneficial for newer owners to be aggressive with their mortgage payments. This is because your money is typically going towards the interest on the loan, not the principal itself. This means that any extra payments will reduce the total amount of interest owed over the course of the entire loan.
Benefits of paying mortgage off early
For one, having one debt paid off means being able to handle any short-term debts such as credit cards. You also end up saving money if you pay off your mortgage earlier, avoiding additional interest that would have otherwise accrued.
Of course there are a host of other factors, like income level and spending patterns, contributing to someone's ability to become a millionaire, but according to Hogan's research, the average millionaire paid off their house in 11 years and 67% live in homes with paid-off mortgages.
Assuming that the average mortgage age in Australia starts somewhere between 25 and 34 years, then to work out the average age to pay off a mortgage in Australia, you just need to add a 25 to a 30-year term. This would make the average age to pay off a mortgage in Australia between 50 and 64 years.
Paying a lump sum off your mortgage will save you money on interest. It will also help you clear your mortgage faster than if you spread your overpayments over a number of years.
Receive mortgage documents: The mortgage company will send you a canceled promissory note, updated deed of trust and certificate of satisfaction. These documents prove that your mortgage is paid off. Save them in a secure location.
Having no credit card debt isn't bad for your credit scores, but you do need to maintain open and active credit accounts to have the best scores. By using your credit cards and paying the balances off monthly (so that you carry no debt), you could achieve an excellent credit score.
Similarly, if you pay off a credit card debt and close the account entirely, your scores could drop. This is because your total available credit is lowered when you close a line of credit, which could result in a higher credit utilization ratio.
Your credit utilization — or amounts owed — will see a positive bump as you pay off debts. Generally, it is a good idea to keep your credit utilization ratio below 30%. Paying off a credit card or line of credit can significantly improve your credit utilization and, in turn, significantly raise your credit score.
"Mortgage rates will decline slightly but end up higher overall across 2023. Expect interest rates to continue to rise and mortgage rates to reach their peak over the summer above 10%."
Almost one in 10 Australians of retirement age is still paying off a mortgage.