{"id":151950,"date":"2023-05-26T16:55:50","date_gmt":"2023-05-26T22:55:50","guid":{"rendered":"https:\/\/www.biggerpockets.com\/blog\/?post_type=phase-level-3&#038;p=151950"},"modified":"2023-11-08T07:31:34","modified_gmt":"2023-11-08T14:31:34","slug":"pay-off-mortgage","status":"publish","type":"phase-level-3","link":"https:\/\/www.biggerpockets.com\/blog\/pay-off-mortgage","title":{"rendered":"Should You Pay Off Your Mortgage Early or Invest?"},"content":{"rendered":"\n<div class=\"wp-block-cover is-light has-level3-cover-style\">\r\n<div class=\"wp-block-cover__inner-container is-layout-flow wp-block-cover-is-layout-flow\">\n\n<figure class=\"wp-block-image size-large has-level3-rounded-figure\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"517\" class=\"wp-image-148988\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/03\/house-cutout-next-to-calculator-1024x517.jpg\" alt=\"house cutout next to calculator\" title=\"\" srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/03\/house-cutout-next-to-calculator-1024x517.jpg 1024w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/03\/house-cutout-next-to-calculator-300x151.jpg 300w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/03\/house-cutout-next-to-calculator-768x388.jpg 768w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/03\/house-cutout-next-to-calculator-1536x775.jpg 1536w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/03\/house-cutout-next-to-calculator-2048x1034.jpg 2048w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n\n\r\n\r\n\n<div class=\"wp-block-spacer\" style=\"height: 30px;\" aria-hidden=\"true\">\u00a0<\/div>\n\n\r\n\r\n\n<h2 class=\"wp-block-heading\">Ready to pay off your mortgage?<mark class=\"has-inline-color\" style=\"background-color: rgba(0, 0, 0, 0); color: #089f4b;\"> Think again!<\/mark><\/h2>\n\n\r\n\r\n\n<p><\/p>\n\n\r\n\r\n\n<p>When you have a limited amount of money coming in each paycheck, it can be very easy to have conflicting financial goals, such as:<\/p>\n\n\r\n\r\n\n<ol class=\"wp-block-list\">\n\n<li>Achieving financial independence.<\/li>\n\n\r\n\r\n\n<li>Paying off real estate (such as an investment property or personal home).<\/li>\n\n<\/ol>\n\n\r\n\r\n\n<p>Asking \u201cShould I pay off my mortgage?\u201d and not knowing the answer is a problem many homeowners face. For many, it\u2019s a difficult choice because the right answer is different for everyone. Decisions are extremely individualized to your specific financial situation. Let\u2019s talk about what might influence this decision of paying down your mortgage for you and your family.<\/p>\n\n<\/div>\r\n<\/div>\n\n\n\n\n      <iframe loading=\"lazy\" frameborder=\"0\" height=\"200\" scrolling=\"no\" src=\"https:\/\/playlist.megaphone.fm\/?e=BIGPOC8626480392\" width=\"100%\"><\/iframe>\r\n  \n\n\n\n\n<div class=\"wp-block-spacer\" style=\"height: 25px;\" aria-hidden=\"true\">\u00a0<\/div>\n\n\n\n<div class=\"wp-block-cover is-light has-level3-cover-style\">\r\n<div class=\"wp-block-cover__inner-container is-layout-flow wp-block-cover-is-layout-flow\">\n\n<h2 class=\"wp-block-heading\">Is It a Good Idea to Pay Off Your Mortgage Early?<\/h2>\n\n\r\n\r\n\n<p>If you\u2019re wondering, \u201cshould I pay off my mortgage or invest in another property,\u201d there are many factors to consider.\u00a0<\/p>\n\n\r\n\r\n\n<p>First, there are two common ways of paying off your mortgage early:<\/p>\n\n\r\n\r\n\n<ol class=\"wp-block-list\">\n\n<li>Paying everything in one lump sum\u2014like after receiving a windfall.<\/li>\n\n\r\n\r\n\n<li>Putting extra payments toward your mortgage\u2014like paying half your monthly mortgage payment biweekly, which essentially creates one extra payment per year.<\/li>\n\n<\/ol>\n\n\r\n\r\n\n<p>These considerations apply no matter your strategy, but also consider:<\/p>\n\n\r\n\r\n\n<ul class=\"wp-block-list\">\n\n<li><strong>The property\u2019s taxes: <\/strong>You\u2019ll continue to pay property taxes on the home, regardless of whether you have a mortgage, so keep this in mind when budgeting for the future.<\/li>\n\n\r\n\r\n\n<li><strong>How long you want to own the property: <\/strong>If you\u2019re planning to live in a home for many years or even into retirement, paying off your home makes sense.\u00a0<\/li>\n\n\r\n\r\n\n<li><strong>Your capital: <\/strong>How much money you have to invest may help determine whether you will answer the question \u201cshould I pay off my mortgage or invest in another property?\u201d with a yes.<\/li>\n\n\r\n\r\n\n<li><strong>Your investment strategy and goals:<\/strong> Where you are in life and with your investment goals might mean that paying off your mortgage makes financial sense. Retirement savings are also a consideration. For instance, if you have a shorter-term loan and want to free up cash for other investments, or if you have loan terms or a mortgage rate you can\u2019t live with, it may be time to act.<\/li>\n\n<\/ul>\n\n\r\n\r\n\n<p>Even if you\u2019re confident you can save the thousands of paying off your mortgage faster, it\u2019s not always the best decision at the present time.\u00a0<\/p>\n\n<\/div>\r\n<\/div>\n\n\n\n<div class=\"wp-block-spacer\" style=\"height: 25px;\" aria-hidden=\"true\">\u00a0<\/div>\n\n\n\n<div class=\"wp-block-cover is-light has-level3-cover-style\">\r\n<div class=\"wp-block-cover__inner-container is-layout-flow wp-block-cover-is-layout-flow\">\n\n<h2 class=\"wp-block-heading\">Advantages of Paying Off Your Mortgage Early<\/h2>\n\n\r\n\r\n\n<p>It could be in your best interest to pay off your mortgage early, especially if you\u2019re longing for stability and peace of mind. Not everyone wants mortgage debt. Here are seven advantages to paying your mortgage off early:<\/p>\n\n\r\n\r\n\n<h3 class=\"wp-block-heading\">1. More cash flow<\/h3>\n\n\r\n\r\n\n<p>When your house is paid off, a mortgage monthly payment disappears from your budget, lowering your household expenses dramatically. With lower living expenses, your overall passive income needed to cover your monthly expenses will also be lower. This means you could achieve financial independence quicker. The money going toward the mortgage now could go toward investing into something else later.<\/p>\n\n\r\n\r\n\n<h3 class=\"wp-block-heading\">2. Equity<\/h3>\n\n\r\n\r\n\n<p>You\u2019ve paid off your mortgage early\u2014now what? You can always put a HELOC on the property if you want access to the cash. Sure, you would be charged an interest rate against your line of credit, but you aren\u2019t charged if you aren\u2019t using it. With the HELOC, you could pay and hold a property while it is being renovated and refinanced. There are funds you could tap into if you really needed to. But you don\u2019t have any active debt against your property.<\/p>\n\n\r\n\r\n\n<p>It isn\u2019t a recommendation to work hard paying off your house and then immediately put a bunch of debt against it. However, you can now use the asset of your house smartly and conservatively for short-term periods to invest in a deal, buy a new rental, or build your investment portfolio another way.<\/p>\n\n\r\n\r\n\n<h3 class=\"wp-block-heading\">3. Rent flexibility<\/h3>\n\n\r\n\r\n\n<p>When your houses have mortgages, you need to have tenants to ensure that the mortgages get paid. Every month that you don\u2019t have a tenant is a month when you lose money. If you pay off the mortgage, you gain rent flexibility because you don\u2019t have as much money going out each month. You can afford to let your unit sit empty until the right tenant comes along, or you finish up with renovations.<\/p>\n\n\r\n\r\n\n<h3 class=\"wp-block-heading\">4. Eviction protection<\/h3>\n\n\r\n\r\n\n<p>Unfortunately, when you own rental properties, evictions will be a necessity at some point. The process of evicting someone can take months, so it\u2019s good to be prepared for this financial setback. When you don\u2019t have a mortgage, you\u2019ll have more eviction protection because you won\u2019t be as reliant on the income to pay the mortgage.<\/p>\n\n\r\n\r\n\n<h3 class=\"wp-block-heading\">5. No debt<\/h3>\n\n\r\n\r\n\n<p>As we said, some people simply don\u2019t want to have a large debt like a mortgage, and that\u2019s OK. Paying off your mortgage can mean that you free up your money to use for an emergency fund or to put away for other needs or wants in your life.<br \/><br \/>Your relationship with money is your own. For those who want to own their home outright\u2014instead of owing a bank\u2014paying off a mortgage can lessen anxiety. When you own your home, you and your family\u2019s life will be less affected if circumstances change, like losing a job, needing to care for a loved one, or other serious events.<\/p>\n\n\r\n\r\n\n<h3 class=\"wp-block-heading\">6. Guaranteed return on investment<\/h3>\n\n\r\n\r\n\n<p>In a way, you have a guaranteed return on investment when you pay off your loan early. This is because any of the money you have left on the loan is money you won\u2019t be paying interest on. So you\u2019ll save whatever the mortgage interest rate on the loan is for the principal amount remaining on what you owe.<\/p>\n\n\r\n\r\n\n<h3 class=\"wp-block-heading\">7. Peace of mind<\/h3>\n\n\r\n\r\n\n<p>Everyone has an individual perspective on debt. Some believe in \u201cgood debt,\u201d such as student loans or<a href=\"https:\/\/www.biggerpockets.com\/blog\/what-investors-must-do-to-survive-and-thrive-in-this-market\" target=\"_blank\" rel=\"noreferrer noopener\"> <u>owning real estate<\/u><\/a>. Others might avoid debt altogether.\u00a0<\/p>\n\n\r\n\r\n\n<p>A person\u2019s relationship with money is greatly influenced by experiences. Previous bankruptcies, job loss, income opportunities, and sicknesses play a role in what financial decisions a person makes in the present day and how they answer the question, \u201cShould I pay off my mortgage or invest in another property?\u201d<\/p>\n\n\r\n\r\n\n<p>For some, having a mortgage payment is too big a risk. They would rather pay their mortgage off early in case a future job loss decreases their income. For others looking to the future, they might fear leaving behind a mortgage for their family members if they died suddenly. Paying off a mortgage can bring peace of mind to many contemplating the question, \u201cShould I pay off my mortgage or invest in another property?\u201d<\/p>\n\n<\/div>\r\n<\/div>\n\n\n\n<div class=\"wp-block-spacer\" style=\"height: 25px;\" aria-hidden=\"true\">\u00a0<\/div>\n\n\n\n<div class=\"wp-block-cover is-light has-level3-cover-style\">\r\n<div class=\"wp-block-cover__inner-container is-layout-flow wp-block-cover-is-layout-flow\">\n\n<h2 class=\"wp-block-heading\">Disadvantages of Paying Off a Rental Mortgage<\/h2>\n\n\r\n\r\n\n<p>Before asking your lender for a payoff quote, consider the negatives of paying off a rental mortgage. Here are eight reasons why someone should invest rather than rid themselves of mortgage debt:<\/p>\n\n\r\n\r\n\n<h3 class=\"wp-block-heading\">1. Real estate investors should have liquid assets<\/h3>\n\n\r\n\r\n\n<p>Owning a home outright reduces liquidity. If something goes awry and you need money fast, it isn\u2019t easy to sell a home. Investment accounts or other cash accounts are much easier to access.<\/p>\n\n\r\n\r\n\n<h3 class=\"wp-block-heading\">2. Your money is tied up instead of being readily available<\/h3>\n\n\r\n\r\n\n<p>One main argument that you should pay off your mortgage early is to minimize how much interest you pay. If you take longer to pay your mortgage, you\u2019ll pay more interest to the lender. But what if your investments earn a higher return than your interest rate? Not only could you cover interest with your investments, but you could be turning a profit too.<\/p>\n\n\r\n\r\n\n<h3 class=\"wp-block-heading\">3. Dead money<\/h3>\n\n\r\n\r\n\n<p>You can actually have too much equity in your home. It\u2019s called dead money because you can\u2019t use it until you sell your home. This makes it much harder to get to if you need it fast. This equity isn\u2019t liquid money.<\/p>\n\n\r\n\r\n\n<h3 class=\"wp-block-heading\">4. No leverage<\/h3>\n\n\r\n\r\n\n<p>A mortgage gives you the opportunity to leverage someone else\u2019s money to purchase your investment. You can yield a return on your investment that will pay off much higher down the road, and you\u2019ll owe less on the debt in the future as well. This leverage could mean owning lots of properties instead of just a single property.<\/p>\n\n\r\n\r\n\n<h3 class=\"wp-block-heading\">5. A rental mortgage doesn\u2019t affect the properties value<\/h3>\n\n\r\n\r\n\n<p>Having a property with a mortgage doesn\u2019t take away from its value. If the property is worth $200,000 and you owe $120,000, the property is still worth $200,000. This only means that if you sell it, you have to pay back the amount you owe before you get your portion of the sale.<\/p>\n\n\r\n\r\n\n<h3 class=\"wp-block-heading\">6. Asset protection<\/h3>\n\n\r\n\r\n\n<p>Because a creditor or lien holder can\u2019t go after a mortgaged property as readily, having a mortgage on your property serves as a type of asset protection. When you pay off the mortgage, it could leave you vulnerable. Paying down your mortgage in a more controlled fashion could be the better approach.<\/p>\n\n\r\n\r\n\n<h3 class=\"wp-block-heading\">7. Inflation breaks down debt<\/h3>\n\n\r\n\r\n\n<p>As inflation rises, the cost of homes rises as well. If mortgage rates increase as well, you won\u2019t have to worry about this if you already have a loan. Your mortgage has a fixed interest rate, which means it stays the same after you sign the contract until that contract ends. So as inflation goes up, it breaks down debt.<\/p>\n\n\r\n\r\n\n<h3 class=\"wp-block-heading\">8. Good investments will outperform the cost of mortgage interest in the long term<\/h3>\n\n\r\n\r\n\n<p>Over time, a good investment will always outperform the cost of mortgage interest. This means that you should pay off your mortgage early if you need the safety that doing so provides. However, those who want to see a larger ROI and more income should consider investing in another property.<\/p>\n\n<\/div>\r\n<\/div>\n\n\n\n<div class=\"wp-block-spacer\" style=\"height: 25px;\" aria-hidden=\"true\">\u00a0<\/div>\n\n\n\n<div class=\"wp-block-cover is-light has-level3-cover-style\">\r\n<div class=\"wp-block-cover__inner-container is-layout-flow wp-block-cover-is-layout-flow\">\n\n<h2 class=\"wp-block-heading\">Mistakes to Avoid If You Pay Off Your Mortgage Early<\/h2>\n\n\r\n\r\n\n<p>Paying off your mortgage early has its benefits, but be sure to avoid these common mistakes that can affect your finances. It\u2019s a good idea to familiarize yourself with these missteps before deciding, \u201cShould I pay off my mortgage or invest in another property?\u201d<\/p>\n\n\r\n\r\n\n<h3 class=\"wp-block-heading\">Not explicitly putting extra mortgage payments toward loan principal<\/h3>\n\n\r\n\r\n\n<p>By putting extra payments toward the loan principal, you reduce the amount of interest accruing. It saves you money and time. But make sure you specify that the payments are going toward your mortgage principal. Reach out to your mortgage lender for instructions on how to do so. An extra mortgage payment here and there can make a big dent in your balance due.<\/p>\n\n\r\n\r\n\n<h3 class=\"wp-block-heading\">Not asking about prepayment penalties<\/h3>\n\n\r\n\r\n\n<p>Believe it or not, some lenders penalize you for paying your mortgage early. Review your mortgage agreement or ask your lender about prepayment penalties.<\/p>\n\n\r\n\r\n\n<h3 class=\"wp-block-heading\">Not recognizing what you have to pay after the mortgage is gone<\/h3>\n\n\r\n\r\n\n<p>Monthly payments go away, but there are other fees you\u2019re responsible for when you own a home, so don&#8217;t count on the extra money.\u00a0 Be sure to budget for them ahead of making the decision to pay off your mortgage.<\/p>\n\n\r\n\r\n\n<p>These fees might include:<\/p>\n\n\r\n\r\n\n<ul class=\"wp-block-list\">\n\n<li>HOA fees<\/li>\n\n\r\n\r\n\n<li>Property taxes<\/li>\n\n\r\n\r\n\n<li>Homeowners insurance<\/li>\n\n\r\n\r\n\n<li>Home maintenance costs<\/li>\n\n<\/ul>\n\n<\/div>\r\n<\/div>\n\n\n\n<div class=\"wp-block-spacer\" style=\"height: 25px;\" aria-hidden=\"true\">\u00a0<\/div>\n\n\n\n<div class=\"wp-block-cover is-light has-level3-cover-style\">\r\n<div class=\"wp-block-cover__inner-container is-layout-flow wp-block-cover-is-layout-flow\">\n\n<h2 class=\"wp-block-heading\">Signs You\u2019re Not Ready to Pay Off Your Mortgage<\/h2>\n\n\r\n\r\n\n<p>Deciding to pay off a mortgage early is a huge financial decision. Even if you really want to, you might not be ready if you have these three things:<\/p>\n\n\r\n\r\n\n<h3 class=\"wp-block-heading\">1. No savings<\/h3>\n\n\r\n\r\n\n<p>How\u2019s your emergency fund? Your retirement savings?<\/p>\n\n\r\n\r\n\n<p>Most financial advisers recommend having an amount of money set aside equal to three to eight months of expenses. Having such a fund buys you time. In the event you lose your job or have some other financial emergency, you have several months to pursue any number of solutions. You might sell your home, find a new job, or sell an investment property to pay down your home mortgage.<\/p>\n\n\r\n\r\n\n<p>It\u2019s also important to pay attention to the balance of your retirement accounts and retirement savings. Don\u2019t neglect your IRA because you don\u2019t want a mortgage payment.<\/p>\n\n\r\n\r\n\n<h3 class=\"wp-block-heading\">2. Uncertain employment<\/h3>\n\n\r\n\r\n\n<p>If your employment is uncertain, it probably isn\u2019t the best decision to reduce the liquidity of your assets. If a job loss occurs, you\u2019ll want investment accounts or bank accounts to fall back on instead of home equity.<\/p>\n\n\r\n\r\n\n<h3 class=\"wp-block-heading\">3. High-interest debt<\/h3>\n\n\r\n\r\n\n<p><a href=\"https:\/\/www.biggerpockets.com\/blog\/rental-properties-are-good-investments-interest-rates-rise\" target=\"_blank\" rel=\"noreferrer noopener\"><u>Interest rates on mortgages<\/u><\/a> are fairly low compared to other forms of credit. High-interest debt should always be paid off before paying more on your mortgage principal. If you carry credit card debt, use any extra money to deal with that first\u2014not your home loan.<\/p>\n\n\r\n\r\n\n<p>If you have the savings to pay off your mortgage, it can be tempting to wipe it out in one fell swoop. But make sure to weigh your long-term goals\u2014and take a hard look at the potential benefits of investing.\u00a0<\/p>\n\n\r\n\r\n\n<p>Weighing the pros and cons of paying off your mortgage faster can help you make an informed decision that\u2019s right for your financial situation. Look at all the angles, and speak with a financial advisor if needed to determine if it makes sense to pay off your mortgage faster.<\/p>\n\n<\/div>\r\n<\/div>\n\n\n\n<div class=\"wp-block-spacer\" style=\"height: 25px;\" aria-hidden=\"true\">\u00a0<\/div>\n\n\n\n<div class=\"wp-block-cover is-light has-level3-cover-style\">\r\n<div class=\"wp-block-cover__inner-container is-layout-flow wp-block-cover-is-layout-flow\">\n\n<h2 class=\"wp-block-heading\">How to Minimize the Risk of Investing in Another Property<\/h2>\n\n\r\n\r\n\n<p>After considering your loan payoff options, if you want to invest in another property instead of paying off a mortgage, you\u2019ll need to take steps to minimize the risk to your portfolio because of this choice, including:\u00a0<\/p>\n\n\r\n\r\n\n<ul class=\"wp-block-list\">\n\n<li><strong>Understand taxes:<\/strong> Know how taxes will affect your investment versus how they might affect paying off your mortgage.<\/li>\n\n\r\n\r\n\n<li><strong>Get plenty of insurance:<\/strong> Having the right<a href=\"https:\/\/www.biggerpockets.com\/blog\/landlord-insurance\" target=\"_blank\" rel=\"noreferrer noopener\"> <u>insurance is key<\/u><\/a> to protecting your assets, so make sure you\u2019re fully covered to limit your out-of-pocket liability.<\/li>\n\n\r\n\r\n\n<li><strong>Have a solid investment strategy:<\/strong> Make sure you know your financial goals and why you\u2019re buying a property.<\/li>\n\n<\/ul>\n\n<\/div>\r\n<\/div>\n","protected":false},"featured_media":0,"template":"","categories":[7119],"class_list":["post-151950","phase-level-3","type-phase-level-3","status-publish","hentry","category-biggerpockets-daily"],"acf":[],"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/phase-level-3\/151950","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/phase-level-3"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/phase-level-3"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=151950"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=151950"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}