Is It Worth It to Pay Off Home Loans Early?


If you have a home, you probably also have a home loan. It’s what allowed you to buy the house of your dreams, and the ultimate goal is to pay it off and completely own your home. But when is the right time to do that?

That answer varies from homeowner to homeowner. Depending on your financial situation, you could be in a position to pay off your home loan a lot sooner than you expected. You could go the route of paying off a little more than is required each month or paying the standard amount and then wiping the rest out in one payment. But just because you have the money doesn’t necessarily mean you should put it all into paying off your home loan.

There are a few things you want to make sure are in order before you pay off your loans. With the help of a local credit union like Rivermark Community Credit Union, you can assess your finances and see if paying off your loans earlier is a good choice for you. In the meantime, there are some things you can do on your own to get closer to an answer. Here are a few questions that can help you decide if it’s worth it to pay off your home loans early.

Do you want to save money on home loan interest?

Your home may have cost a certain amount when you bought it, but the longer you wait to pay it off, the higher the actual cost of the house becomes. This is due to interest. When you take out a loan for a home, you agree to pay a certain percentage of interest on the loan, and the longer you wait to pay off your home, the more interest you end up paying.

A benefit of paying off your home loans early is that you won’t have to continue paying interest on it. Think of all you could do with that extra money. If you’re at a place financially where you can pay off your loans early, then it may be worth it to save the money on interest and pay the loan. But you should also consider a few other financial aspects.

Do you have any other debt?

The other debt that you have, if any, can play a part in whether it’s worth it to pay off your home loan early. Sure, you’ll save money on the interest you would have paid on your home loan, but will that make you put off paying other debts you have?

One of the good things about home loans is that the interest rates are far typically lower than, say, a credit card. According to the NCUA, in December 2019, the average 30-year fixed-rate mortgage rate for credit unions was 3.97 percent. Credit cards, however, are notorious for sometimes having over 20 percent interest on balances owed, and the longer you wait to pay them off, the higher they become.

School loans are another debt you should consider. Though the initial balance may be a lot smaller than your current home loan balance, the interest rate is probably higher. You could end up saving more by paying off your school loans before you jump the gun and pay your home loans off. Either way, it’s best to take a look at your other debt before you go all-in on your home loan.

Are you saving a portion of your income?

If all of your other debt has been paid off, you may think it’s a good time to bite the bullet and pay off your home loan a little early. But have you considered what would happen after that? With the right amount of savings, you’ll have security, but without it, you may be opening yourself up to future problems. Aside from having the money to pay off the loan early, you should also have money set aside for other things in your life.

An emergency fund is one thing that’s worth having before you pay off your mortgage early. You should have an amount of money saved that you are comfortable living off for a short time. The relief you feel from paying off your loan could easily be replaced with stress and panic if an emergency occurred and you weren’t financially ready.

Another financial aspect you want to keep in mind is your retirement. Have you been saving a portion of your income to put toward the years when you’ll no longer have a steady income? You wouldn’t want to pay off your home early if you haven’t been saving properly for retirement, leaving your accounts with nothing for the future. It’s a good idea to speak with a financial planner before you pay off your home loan early so you don’t spend funds you’re going to need later.

Are you planning on living there forever?

A factor that could go into your decision to pay off your home loan early is how long you plan on living in the home. If you’re currently living in your starter home and plan on moving in the next few years, paying off your home loan early may not be the best option. The goal of paying off your home loan early is to escape the interest and the debt associated with it. You want to make that final payment and feel debt-free. But when you’re planning on moving soon, you’ll need extra money to pay for things like broker fees, down payments, and inspection fees. That’s usually money you pay upfront. Saving the money you could put into your temporary living situation for a longer-term home can have more benefits.

However, if you plan on living in your home forever, paying off your home loan early could be a wise choice. In this case, paying off your home is an investment in your future and can create a better opportunity for financial freedom down the line.

Determining if it’s worth it to pay off home loans early is ultimately up to you, but we recommend asking these questions of your finances before you make your decision. And if you do decide to pay off your loans early, work closely with your credit union to ensure you’re in the best place possible to do so.


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