Should you pay off your mortgage early?

Your mortgage payment occupies a sizable chunk of your monthly bills. Why wouldn’t you want to get rid of it as soon as possible? Well, with today’s low interest rates, there may be better ways to use your extra cash.

Where else might I put the money I spend on my mortgage payment each month?

• Do you have high-interest debt elsewhere? Credit-card debt and any other higher-interest loans—that aren’t tax deductible—may be better places to place your cash.
• How’s your retirement fund? Before you put money toward an extra mortgage payment, make sure you’ve taken full advantage of your 401(k) and individual retirement account.
• Do you have an emergency fund? Most financial advisers will tell you it’s wise to have enough in savings to cover your expenses for at least six months.

Who will benefit from paying off early?
If you don’t deduct your mortgage interest, the actual cost of your mortgage is higher. Paying it off early makes sense.

Do you pay private mortgage insurance? Lenders typically charge PMI to borrowers with less than 20% equity in their homes. If you’re close to 20%, making extra payments could put you over the top, eliminating PMI and reducing your monthly payments.

How can I pay off my mortgage early?
If paying off your mortgage early makes sense for you, first confirm that your mortgage agreement doesn’t have penalties for early payment. If you won’t be penalized, budget for paying off half your mortgage every two weeks. Because there are 52 weeks in the year but only 12 months, you’ll end up with 26 half-payments—13 monthly payments—during a calendar year.

Is it better if I have an ARM or fixed-rate mortgage?
Paying extra on an adjustable rate mortgage typically lessens the amount due but doesn’t change the term. Conversely, when borrowers make extra payments on a fixed-rate mortgage, they shorten the term but don’t affect the payment.

As you can see, paying down your mortgage isn’t right for everyone. Talk to your mortgage lender for their expert advice.