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Why You Shouldn’t Pay Your Mortgage Off Early

Depending on your own unique mortgage, sometimes the idea of paying off your mortgage early can backfire. Here at the Kingsville movers, we want to make sure you understand when potential negative side effects can occur from paying off your mortgage early. Read on and learn how to protect yourself from an onset of additional fees and other complications.

There are many things to consider when it comes to the best way to pay your mortgage. For example, if you have a fixed rate mortgage with a very low interest rate, then why would you rush to pay it off? Paying off a low rate mortgage will just mean less money available for other emergencies that may come up. Aside from spending your savings, there are other reasons why paying off your mortgage early could be a bad idea.

Does your mortgage cite prepayment penalties? Some lenders are so discouraging of paying off loans early that they will fine you for paying too much too soon. A prepayment penalty is a provision that says you will owe a penalty if you pay off the entire loan before the agreed timetable is executed. Homeowners should do their research and double check their loan paperwork to see what it might mean for you if you pay off your mortgage before the loan runs its term.

The potential fees for paying off a mortgage don’t stop there. There are also penalties from the IRS involved in paying off your mortgage prematurely. There is a mortgage recording tax (MRT) that homeowners may have to pay twice if they pay off their loan early. So how can you end up paying the MRT twice? Well, let's say that you decide to pay off your mortgage as quickly as possible. Then, you suddenly need a large amount of cash, and decide to access some of your home equity through a cash-out refinance. In this case, the MRT would be due a second time, Reiss explains. That's because under New York law, the MRT must be paid when a new mortgage is created and recorded on a property (as is the case with a refinance).

While you could argue that you want to pay off the loan and have the home your full property, there are other things that your money should go to in the meantime. For example, your retirement fund! Rather than double up on mortgage payments, save more towards retiring. And if you have children, you need to save for their college education. Make contributions to college funds, IRAs, 401ks and more before you decide to pay off the remainder of your mortgage. If you don’t have a specific college fund set up, now would be the time to open a 529 plan for the future.

Increase your ROI by investing the money instead. Investing wisely and maintaining the mortgage will pay out way more than paying for the house in full sooner.