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After you buy a home, you may land up in a dilemma, thinking whether you should pay off the debt early or not. Some people prefer to allocate some extra funds each month, so that they can clear off the mortgage early. Others may consider paying off the home loan at once, or follow the EMI schedule and take time to settle the amount. In case you go for the lumpsum option, you should know the pros and cons of paying off the home loan early.
For some people, the mortgage is simply one of several financial goals. At times, it becomes easy to prioritize these goals. Your credit card bills may be charged at 20% interest, while your home loan comes at cheaper rates. In these cases, you should prioritize clearing the credit card bill earlier. You may want to put away some funds for the education of your child, or any other needs. On the other hand, people may face various emotional issues while paying off a mortgage. You would enjoy the security of owning a home, but while paying off the mortgage, people may not face this financial security. You need to use up all the available cash. Therefore, you should consider whether or not to pay off the loan early.
Here are certain things you should think about, when you decide to pay off the mortgage:
Other debts that you may be having
Make sure that the home mortgage is the last debt you are paying off. Since the rate of interest you need to pay for these loans is low, you may consider paying off the other loans like personal loan, car loan and so on. You may also be having second mortgages, line of credit and other loans, which needs to be tackled at the outset. People also need to deal with education loans, credit card loans and various loans, for which you need to pay a high rate of interest. When you have paid off all other loans, you should think of clearing off the home loan.
You should be having an emergency fund
Every household should have adequate amount of money to cover expenses that arise as an emergency. When you pay off the mortgage early, you block this amount. Before thinking of paying off the loan amount early, make sure that you have enough money at your disposal, that might be required in an emergency. When you deal with funds, you should consider the liquidity factor. Since a lot of cash is required while paying off the loan, it may lead to fund constraints when you actually need the amount. It is for this reason that people prefer paying the amounts as per the EMI schedule.
Besides, you need to save money for other big purchases. Invest smartly to optimize the cash flow and enjoy your financial freedom
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