Paying off your mortgage early may reduce costs in retirement, but it also reduces liquidity. Using extra income or savings to pay down a mortgage faster moves your most liquid asset (cash) into a very illiquid asset (your home).
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. Of course, it's one thing to shed a credit card balance by age 45. But many people don't first buy a home until they reach their 30s.
The Bottom Line
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.
Another downside to paying off your mortgage early is the potential prepayment penalties. Because it eats into their ability to make a profit, lenders charge fees when you pay your mortgage off too early. While prepayment penalty fees can vary, most are a small percentage of the outstanding loan balance.
If your financial hardship is temporary, you have the option to apply to access some of your super early to pay your mortgage or council rates arrears and prevent the forced sale of your home. If you are behind on your mortgage or council rates you have the right to ask for hardship assistance.
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.
If your income is less certain it makes more sense to pay down your mortgage. If your work income is stable, investing is more attractive. There's less risk you'll need to sell down your portfolio early to meet mortgage repayments.
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.
What are the benefits of being mortgage free? Having more disposable income, and no interest to pay, are just some of the great benefits to being mortgage free. When you pay off your mortgage, you'll have much more money to put into savings, spend on yourself and access when you need it.
You will most likely have to discharge your mortgage once you've paid off your home loan in full. The procedure of formally removing your lender from your Certificate of Title is known as a discharge. Notifying your lender is usually the first step in discharging your mortgage.
Pay a lump sum toward the principal balance
Making a lump sum payment toward your mortgage will decrease what you owe and save money on interest. If you receive some sort of windfall, such as an inheritance or a large tax refund, you can also consider making a lump sum payment toward your mortgage.
Paying more toward your principal can reduce the interest you'll pay over time, as discussed above. Additionally, every payment that goes toward your principal builds equity in your home, so you can build equity faster by making additional principal-only payments.
The general rule is that if you double your required payment, you will pay your 30-year fixed rate loan off in less than ten years. A $100,000 mortgage with a 6 percent interest rate requires a payment of $599.55 for 30 years. If you double the payment, the loan is paid off in 109 months, or nine years and one month.
The Standard Route. The Standard Route is what credit companies and lenders recommend. If this is the graduate's choice, he or she will be debt free around the age of 58.
The average American holds a debt balance of $96,371, according to 2021 Experian data, the latest data available.
Once a mortgage has been cleared the homeowner can either: Continue to live in the property and enjoy their reduced outgoings. Sell up and make use of the money made from the sale. Remortgage the property with a residential mortgage to access money without having to sell and move elsewhere.
If your monthly mortgage payment is greater than the interest you are receiving after tax, you will be better off paying off your mortgage. If you have an interest only mortgage, overpaying on the interest will have no effect on reducing your mortgage cost or term.
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. But this option holds risk. If you needed the money back in an emergency, such as job loss, it could be difficult.
Once your mortgage payment is 90 days late, your lender will send you a notice that's known as a demand letter. This essentially states that your payments are late and unless you start paying for the missing ones, the lender will have no option but to begin foreclosure proceedings.
The Dave Ramsey mortgage plan encourages homeowners to aggressively pay off their mortgages early, however. One recommendation Ramsey makes is to convert your 30-year mortgage into a fixed-rate, 15-year home loan. Not only will you pay off a 15-year mortgage in half the time, but you'll also pay much less in interest.
Even if your investment property is negatively geared, if you can afford to cover the shortfall in rent/home loan repayments you should hold onto it. Often making the most of your eligible tax deductions are reason enough to keep an investment property.
Should you pay off your primary home or rental property? It really depends on your circumstances. It is wise to pay off any debt at all if you want equity. However, it is also wise to use the money to invest in a second investment property, especially if you're going to generate more wealth in the long run.
Bottom line. Very rarely should you sell your investments to pay off debt. The one exception here is if you have high-interest debt (like an outstanding credit card balance), but even then there are alternatives to consider before using your investments as repayment.