Pre-Paying Your Mortgage: Should You or Shouldn't You?

The decision whether or not to prepay your mortgage can be downright confusing, and the answer depends on a number of factors. Are you a conservative investor or a risk-taker? Do you plan on moving? Would it be smarter to invest elsewhere? Here are some guidelines to help you make the right choice.

It could make good sense if:

You have a fixed-rate mortgage, are debt adverse and are a conservative investor. The return of your prepayment investment on a fixed-rate mortgage is guaranteed to remain constant. If you think the market is too risky, then it may be worthwhile to apply extra money to your mortgage.
You are looking for peace of mind. Paying off a mortgage carries an enormous emotional value and sense of security, especially in times when the market is shaky.
You want to reduce living expenses for a planned change in your financial future. Paying off your mortgage early can mean a big reduction in living expenses, which could make things easier when you plan to retire or put a child through college.

It might not make sense if:

You can get a better return in an investment, and you're willing to take a long-term ride on the market.
You're in a high tax bracket and need the interest tax deduction.
You'll be subjected to prepayment penalties.
You plan on moving and will be financing another loan
You don't have an emergency savings account of three to six month's worth of expenses.
You have other high-rate non-deductible interest you're paying, such as credit cards.

To help you determine the financial advantages of making extra payments and to figure out your tax savings, use our free real estate calculators.