5 Financial Factors to Consider Before You Pay Off Your Mortgage Early - Mortgage Prepayments
- Alex Leite
- 9 minutes ago
- 2 min read
Paying Off Your Mortgage Early
Here are the five most common factors to consider when paying off your mortgage early and making a mortgage prepayment:
1. The Opportunity Cost Trade-Off
By using cash to pay off a low-rate mortgage, you might miss out on potentially higher long-term growth by investing that money elsewhere.
2. Loss of Liquidity (Cash is King)
Once that cash is tied up in home equity, it becomes much harder to access than money held in a readily available bank or investment account.
3. The Mortgage Interest Deduction (Rental Properties)
Paying off your loan means losing the ability to deduct mortgage interest, which could increase your taxable income if you use deductions.
4. Retirement and University Funding Must Come First
Prioritizing the mortgage payoff over maximizing contributions to tax-advantaged retirement or university savings accounts might help you now, but hurt you later.
5. Prepayment Penalties
You must confirm with your lender that your specific loan does not have a fee for paying the principal off early.
If you’re looking to pay off your mortgage early but aren't sure it’s the right move for you, feel free to reach out to Alex at alex@triedandtruemortgages.ca to discuss your options.
The Key Takeaway For Mortgage Pre-Payments
Paying off your mortgage early should be viewed as a trade-off between guaranteed savings (lowering interest) and better returns/liquidity from other financial priorities (investments, emergency funds, and tax-advantaged accounts).
TL;DR:
Opportunity Cost and Liquidity: Paying off a low-rate mortgage early sacrifices potential higher investment returns and reduces your readily available cash (liquidity).
Prioritize Tax-Advantaged Savings: Retirement and university savings should generally be fully funded before prioritizing a mortgage payoff.
Key Trade-Off: Early mortgage payment is a decision between achieving guaranteed interest savings and maintaining financial flexibility through investments and accessible cash.
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5 Financial Factors to Consider Before You Pay Off Your Mortgage Early
***Please speak to your financial advisor, accountant and/or lawyer before making any financial decisions. Tried & True Mortgages Inc. is not a financial advisor and is not responsible for any financial loss from your decisions while investing in real estate or otherwise.
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