Many homeowners are faced with question of whether it’s a good idea to pay down their mortgage if they have some extra money. The benefits are many. Most importantly, you can reduce the length of your loan. If you simply make an extra payment or two, especially early in the loan, you can take quite a bit of time off your mortgage. The more you pay down and the earlier you do it, the better.
However, it might not actually make sense to pay down your home loan. There are quite a few factors involved when making this decision. You need to first do the basic calculations about how much you owe, how long the loan remains in effect, what your current interest rate is and what your other outstanding debts are. As mortgage rates fall lower it makes less sense to pay down your loan. Likewise, if you have credit card debt that is a higher interest rate you need to pay that down first.
Still, even after you’ve made some basic calculations, you need to dig a little deeper. Remember that payments on the interest of your home loan are tax deductible. The less interest you pay the less of a deduction. You need to figure this into your overall savings when you pay down the principal of your loan. The NYTimes has a good article on the details of this decision.
Ultimately, it boils down to numbers of course, but there is the emotional element involved with a home mortgage loan that is not always found elsewhere and which will usually play into your decision. It simply feels right to put some extra cash toward that mortgage. The idea of possibly paying off your house in 25 rather than 30 years is a notion that can’t always be quantified.
