A home is typically your biggest asset, and a home loan your biggest debt. Should you even try to pay off your mortgage early?
Your financial priorities are different than your neighbor’s or your best friend’s or your parents’.
Take a home mortgage, for example. Plenty of people are happy with paying 15 or 30 years on a mortgage, while others are anxious to get rid of any debt—including their home loan—as soon as possible.
Which is “right”? As with most things related to money, it’s complicated—and more personal—than a single choice.
Here’s what to consider if you’re thinking about when to pay off your mortgage.
Good debt vs. bad debt
Some people think of all debt as “bad,” but that’s not really the case. Good debt and bad debt both exist. A mortgage lands squarely in the “good debt” column.
“How a loan is secured determines whether it’s good or bad,” says Stanley Poorman, a financial professional with Principal®. “A mortgage is secured by an asset—your house—which gives it an advantage. Personal loans and credit cards are not.”
Think of good debt this way: Every payment you make increases your ownership in that asset, in this case your home. But bad debt like credit card payments? That debt is for things you’ve already paid for and are probably using. You’re not going to “own” any more of a pair of jeans, for example.
There’s another key difference between purchasing a home and buying most goods and services. Very often, people can pay cash for things like clothes or electronics. “The vast majority of people couldn’t pay cash for a home,” Poorman says. That makes a mortgage all but necessary to buy a house.
Potential disadvantages of paying off a mortgage
Your mortgage may not be worth paying off early if the factors below apply to you.
When it may be a good idea to pay off your house
Eliminating mortgage debt could be a good idea if the factors below apply to you.
Ultimately, the decision to keep your mortgage or pay it off is personal and tied to how you feel about money and security.
“You’re working hard,” Poorman says. “It’s about you and what you want.”