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Should You Say Goodbye to Your Mortgage?


It is certainly a privilege to be facing a quandary like this one! Most home owners long for the day when they can bid good-bye to their mortgages and experience life free from that kind of incredible debt hanging over their heads. If you have come into money in recent years and are considering doing away with your home loan, you should make sure to consider both the pros and cons of doing so.

On the Plus Side:

  • No more debt!  It feels like a great relief to get rid of something as significant – and significantly expensive – as a mortgage.  Most people pay more than 20% of their monthly income in order to keep a roof over their heads.  No longer having to worry about that expense can seem like the best thing in the world. 
  • Start Saving!  Without a $1,000+ monthly payment on your mind and in your checking account, you can start saving more of your income.  Financial experts recommend keeping enough money in savings so that you could pay all of your bills (credit card debt, property taxes, car and home insurance, food, medical bills, etc) for eight months if you suddenly became unemployed.  In these difficult economic times, some are even suggesting that you store up a nest egg that will last you even longer!  Regardless, you can make sure that you have enough money in the bank to manage any sudden expenses, and then begin storing up for retirement.  Or, save for a special purchase, like traveling or a new vehicle.
  • Invest Wisely!  Another option, if you are able to pay off your loan early, is to put the money you were spending on that into well-advised investments.  By consulting with a financial advisor, you can choose options that will have high returns in the coming years. 
  • Dream Big!  If you have your savings in order and you also have the ability to pay off your mortgage, just think of the things you can do with that extra money every month.  Make your home cozier with new furniture, travel to new places or visit old friends, donate to your favorite charity, finance that car you have always wanted.  No matter what you decide, it can be great fun to dream about all the ways in which you can spend the mortgage payment you no longer need to make. 

But There Are Some Negatives

Although it may sound as though doing away with your mortgage is the easiest decision you could ever make, there are some things you should consider before you pay it off.

  • Your Tax Shelter is Gone.  Being able to claim the interest portion of your mortgage on your income taxes is a big benefit for many individuals and married couples.  You would have to sit down and calculate exactly how much deducting that interest earns you in refunds before you can determine whether or not it is worth keeping a loan for tax purposes.
  • Interest Rates are Fluctuating.  If you ever require a new mortgage, you could quite possibly end up with a higher interest rate.  While that isn't the end of the world, it is worth thinking about.  You should not have any trouble getting a home equity loan or line or credit in the future, if you own your property outright, but the rate you pay may be more than you expect. 
  • Watch Out for Penalties.  Sometimes, lenders build penalties into their contracts, penalizing borrowers for paying back what they owe before their term is up.  Depending on the penalty, you may be better off sticking with it for the duration.  Next time, though, make sure to avoid those conditions!   

As with any serious financial matters, it is always wise to consult an expert before making any decisions.


Home Equity Line of Credit vs Home Equity Loan:

  A HELOC is Flexible
    A line of credit allows you to spend money as you need it, and only pay on the portion you have used.
  Perfect for Long Term Projects
    Spend as you go for extensive home repair or rennovation projects.
  Borrow Before You Need It
    Keeping an open line of credit means that the money is there when you need it. Don't worry about finding a loan at the last minute.
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