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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.
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