A mortgage means a debt secured by real property and the debtor must pay the debt according to a set of rules. The buyer has to repay the loan and interest depending on the years. The buyer owns the home until the money is cleared. Also, the mortgage can be foreclosed if the borrower stops paying. Mortgages are divided into several forms. For example, 30year fixed and 15 years fixed. Others are more than 30 years or below 5 years. Check out the pros and cons of paying off a mortgage:
Pros
1. Financial security: Pay off the mortgage gives borrowers financial relief for a long time. A mortgage allows you to breathe seeing that you do not pay debts every month. Therefore, you will be able to distribute money. This allows you to pay other debts like loans and high bills.
2. It offers freedom: Every loan owner has a dream to pay off debts and focus on other things. However, you cannot invest in other things when your loan to pay back. Pay off mortgage give you the financial freedom to reach your goals. You will have extra money to travel around the globe and our own business.
3. Saves during the irregular market: Unstable property market has become a problem for both real estate owners and homeowners. It is not easy to deal with mortgage payments in an unstable market. The paid mortgage helps to relieve the financial burden in unstable markets. Also, it gives time until the value of housing becomes better.
4. Lowers stress: Stress has left most people to feel anxious and find it hard to sleep. Psychological stress release cortisol that affects overall health and brain. It can trigger health conditions such as heart attack, suicidal thoughts, and strokes. You can only relieve stress when everything is in order. For example, clearing off debts helps to lower the stress that is accompanied by it.
5. Saves emergency: Emergencies can pop up at any time when you are not prepared. You can ask for help from your family and friends but the assistance will not be 100% guaranteed. It is recommended to always keep emergency money. For example, medical emergency and broken equipment at home.
6. Increases the flow of money: Your money will not be deducted for loans. Henceforth, the flow of money increases unlike saving debts.
7. Brings peace of mind: Every person has the aim of owning a home. Nobody wants to pay rent throughout life. Peace of mind is one of the great advantages after the debt is paid off. The payment brings peace of mind and body. You will not experience on how to deal with loans. Paying off the mortgage gives financial freedom hence homeowners do not experience stress from loans.
8. Increase retirement savings: Paying debts gives you time to start saving before your retirement. You can accumulate the money and interests then use in your retirement dream. This will help your retirement savings to increase.
9. Saves other goals: After paying off your debts, your account is now free from to save for other expenses and goals. You will not have a financial burden hence you can move forward to save cash for other dreams. You can create a savings locked account to prevent temptations. Make sure every month you save some cash every month.
10. Pay off other debts: The new income will be enough to pay off other debts such as student debt, credit card debt, and auto loan.
11. Lower loan interests: Some loans have higher interests that you must pay over a specific period. Paying off the mortgage will lower the rate of interest. Therefore, you will save the money supposed to pay on interest.
12. Open room for investment: Everyone wants to have enough cash to invest during retirement. You can keep the money for long term goals and short term goals. There are many things to do like buying stocks, starting a brokerage account, buying mutual funds, and bonds. This will depend on tolerance risks. Also, you can invest in the stock market but it comes with high risks. Generally, the stock market has higher returns. Another alternative way of stock markets is investing in CDs during your retirement. It has low returns but is more guaranteed.
13. Increase credit score: After repayment, your credit card will reflect that the debt is satisfied. This affects your credit card positively. Lenders and creditors are convinced when you have good standing in loan repayment. As a result of this, you can seek another loan in order to pursue your dreams.
Cons
1. It changes credit score: Mortgage can drop off if it is the only debt installment reflected on the credit card. This lowers credit score seeing that you do not have regular loan repayment. However, this change can be avoided when other accounts are on good terms. Always check the credit card to monitor any changes.
2. Taxes: The money paid on the mortgage can be sending to max tax advantage plans. Tax savings are always compensated on the interests of the mortgage.
3. Market inflation: Market inflation is a common disadvantage when it comes to paying property loans. The payment of a mortgage is in future money. This means that money costs less in real life. For instance, if there is an annual inflation of 2 percent, you will pay $2000 but in real money, it can cost $1,743.
4. Lowers ability: You make a good balance sheet when you keep a mortgage. However, clearing mortgage with cash lowers the ability to face opportunities and expenses.
5. Decreases opportunities: A home in a great investment but it comes with disadvantages. Real estate has a long term increase in values.
6. Increases cost of borrowing: Paying off a mortgage increases the cost of borrowing. For instance, the mortgage can cost twice if you are buying for the second time.
7. Rise in interest rate: The rate of interest is not the same throughout the year. A mortgage has irregular interests. You may end up paying more interest than before.
8. Debt: It is not a good idea when you have not budgeted well. You have to pay off the debt every month.
9. Renovations: Homeowners spend a lot of money on renovation and furniture.
10. Additional costs: Mortgage comes with additional costs that you have not budgeted.
