For most Americans, their biggest monthly expense is their mortgage. So, if you find yourself in the fortunate position to be able to pay off that debt, should you? Financial experts have differing opinions, so let’s take a look at some of the pros and cons. 

You will pay less interest 

The most obvious benefit of paying off your mortgage early is it will save you a lot of money in interest in the long run. For example, let’s say you owe $200,000 on your home and have 20 years left on your 30-year mortgage, with a 4.5 percent interest rate. If you paid an extra $500 a month towards your principal, you could shorten your mortgage term by just over 8.5 years and save yourself $38,749 in interest. 

You lose the mortgage interest tax deduction 

If you are in the enviable position to pay off your mortgage, you have probably heard this argument a lot, but if this is your sole reason for waiting, you need to crunch the numbers. 

 “If you are thinking of paying off your mortgage early, talk with an experienced tax advisor,” said Bill McLeod, mortgage manager with CASE Credit Union. “Especially with tax laws, things are changing, and you need to analyze your individual financial situation and weigh the importance of having that tax deduction vs. freeing up money for other investment opportunities.”   

You’ll have the freedom of less debt 

A big bonus of paying off your mortgage is simply being able to have peace of mind. By eliminating that monthly mortgage expense, you will not only have more money to throw into savings or retirement, but you will also have that stability of having an affordable place to live should your income decline. 

When it comes to retirement, the Consumer Financial Protection Bureau (CFPB) estimates that 30 percent of homeowners who are 65 and over enter their retirement with mortgage debt. Most retirees are living on a fixed income, so if their home is paid off, they can enjoy greater security and flexibility.

You may lower your liquidity

One of the suggested drawbacks to paying off your mortgage is that it’s an illiquid asset, meaning you can’t simply withdraw funds from it or spend it like you would cash. While you can tap into your home’s value through a home equity line of credit, some experts warn that you are setting yourself up to be right where you were before...in debt. 

The bottom line

So, if presented with the opportunity, should you pay off your mortgage early? It really depends. McLeod says you need to look at your overall financial situation. 

“Look at other areas of your finances...do you have adequate emergency savings? Do you have any large expenses or purchases coming up? Are you putting away enough for retirement? If all of those things are taken care of then by all means, start paying down your mortgage.” 

There are several ways to accomplish this. For instance, some lenders allow borrowers to make biweekly payments. In this scenario, consumers make half of their mortgage payment every two weeks, which actually results in 13 full monthly payments. That extra payment can knock 8 years off a 30-year mortgage, depending on the interest rate. 

“You could pay an annual lump sum toward the principal, or you could make one extra house payment each quarter...there are several options,” said McLeod. “Homeowners can also refinance to a shorter term loan at a lower interest rate. If you can swing the higher payment, you will dramatically cut down on your interest.” 

What about those sneaky prepayment penalties? McLeod says they are really a thing of the past. 

“We really aren’t seeing those on conventional loans much anymore,” he said. “But, to avoid any unpleasant surprises, contact a local lender and have them review your mortgage and closing paperwork to see if there is anything you should watch out for should you decide to pay the loan off early.” 

Want to discuss your options? Contact a lender member of the Greater Lansing Association of REALTORS® for some professional advice. Visit www.lansing-realestate.com for a listing of local mortgage professionals.