
Longer and shorter term mortgage options: which is right for you?
You may have heard the popular advice that you should always get a 15-year loan, or even go shorter into a 5- or 10-year loan. Realistically, that isn't for everyone. There are advantages and disadvantages to the traditional 30-year loan, and which one you choose depends on your unique financial situation and comfort level with having monthly payments.
If you choose a shorter-term loan, or if your income suddenly grows and you have extra money to pay off your house early, there are several advantages. Once your mortgage is fully paid-off, you won't have to worry about monthly payments, which leads to more immediate financial freedom. You may save on interest payments due to not having the loan for as long of a term as originally agreed-upon. You could invest this extra. Knowing you own your home outright can provide a sense of security.
The longer loan, though, also has some advantages. Often, the interest level of your home is lower than the average potential gains from being invested in the stock market. It may be more lucrative to use the extra money to invest in the stock market, seeing greater return on your money over time. Having a mortgage can preserve liquidity, making it easier to access funds in case of an emergency. And, in some cases, paying off your mortgage can affect your tax deductions.
When making the big decision of your loan length or whether to pay off your loan early, consider your financial goals and comfort level with owning your home outright. If ownership is a high priority, it might be a good option to pay off your mortgage early. A high mortgage interest rate may cost more long-term, making paying it off advantageous. If you have other debts or savings goals, calculate how you can meet those if you take on higher mortgage payments. Since there are tax implications, it's always a good idea to meet with a tax professional or financial/investment advisor to understand how paying off your mortgage early may affect your tax situation.
Deciding whether to pay off your house early is a personal one. It's important to weigh the pros and cons carefully and consider your individual financial circumstances and goals. As always, you are welcome to meet with us to have a third party opinion to help you make the most informed decision.