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5 Mistakes to Avoid When Paying Off Your Mortgage Early: An Overview

Susan Kelly

Oct 25, 2023

A faulty mortgage choice can cost you time and money whether you're a first-time buyer or a seasoned investor. What you don't know about mortgages can and will hurt you. You can make wiser choices if you know what hazards to watch out for.

Investing completely in your mortgage, not paying extra on the loan principal, considering the interest rate solely, mortgage payoff reduces liquidity, and not inquiring about possible prepayment fees are common mistakes you should avoid at any cost.

Today, we will discuss all of these 5 common mortgage mistakes here. Also, you will get to know how to avoid them. So, let's get into the details!

Reasons To Prepay Your Mortgage:

Reduced Interest Costs Allow You To:

You can save money on interest by paying off your mortgage early. That is especially true at the beginning of your mortgage when interest is calculated on a considerably larger principal balance. Depending on the size and length of your mortgage, you could save a significant amount of money while giving up your mortgage interest tax deductions.

You're Paying A High-Interest Rate:

Paying off your mortgage can make sense if your interest rate is high and you don't see a better return on investment elsewhere. The S&P 500 has returned 7.45% annually over the past 20 years, so even if your mortgage rate is high, you might want to consider investing whatever spare cash you have.

Peace Of Mind:

Every justification need not be based on sound economics. Avoiding a mortgage payment is a great option for many people because it reduces their future monthly outlay and frees up capital for other uses. It's understandable to try to cut back on housing costs for retirees, as it constitutes over 36% of their annual expenditures on average.

Some Mistakes to Avoid When Paying Off Your Mortgage Early:

Investing Completely in Your Mortgage:

Putting all your money toward your house payment can put you in a tough financial spot. You've been putting every dime toward your mortgage payment, but something unexpected happens, like a car crash, job loss, a large repair on your home, or any other crisis.

If you have no savings to fall back on, you will quickly accumulate debt as you borrow money to meet your financial obligations. Your home could be foreclosed upon if, despite your best efforts, you cannot keep up with your mortgage payments. Ensure you have an emergency fund and aren't spending all of your income on mortgage payments if you want to pay them off quickly.

Not Paying Extra on the Loan Principal:

Putting an extra $500 or $1,000 toward your mortgage each month is not guaranteed to hasten its payoff. The lender may use the extra money to reduce the interest on your next payment unless you prefer that it be allocated to the principal.

Make sure to specify in the memo line that the cheque is for an additional principal payment. Before making an online mortgage payment, it's a good idea to confirm with your lender that they'll accept a letter detailing the intended use of any overdue payments.

Considering The Interest Rate Solely:

When picking a mortgage, it's important to consider more than just the interest rate. Choosing the mortgage provider with the lowest interest rate isn't always the smartest move. Even though certain loan providers may advertise attractively low-interest rates (often called "honeymoon rates"), you may find that the total cost of your loan is significantly higher when factoring in things like origination fees, prepayment penalties, and legal fees.

There is a reason they are named "Basic Home Loans" for a reason, and a cheaper rate may mean much fewer product possibilities. A mortgage broker can help you consider all these things when deciding.

Mortgage Payoff Reduces Liquidity

Please explain the drawbacks of prepaying a mortgage. Money's liquidity is measured by how quickly and easily it can be spent. Liquidity is reduced when money is invested solely in one place, such as a house. A home equity loan or a home sale would be necessary to access the funds in an unexpected financial emergency.

You could have easier access to the funds if you put off paying off the mortgage and instead put them into a savings account. You need to figure out how much cash you need against how much you want to be free of your mortgage. Those who want to eliminate their mortgage early typically have no pressing financial concerns.

Not Inquiring About Possible Prepayment Fees:

Remember that the interest you pay is how the lender makes money. Because of this, they may try to prevent you from prepaying your mortgage. Some lenders impose a prepayment penalty to compensate for their losing interest.

The prepayment penalties on some mortgages are so high that paying off the loan would be more expensive in the long run. Research the prepayment policies of your lender before you pay off your mortgage early. It would be the most brilliant way to pay off your mortgage.

Disadvantages Of Paying Off Mortgage

Prepayment Penalties:

Most mortgages charge thousands for early repayment. If it saves you interest, this charge may be worth it. However, if your mortgage term ends, you should consider this price.

Not Paying Off Higher-Cost Bills First:

Pay off the credit card and car loans before your mortgage. Mortgages are cheaper than store cards, credit cards, and vehicle loans. While your mortgage may seem enormous, your lesser loans and credit agreements will cost you more.

Credit card debt may be a priority for you. Eliminating these loans frees up monthly cash flow that can be used to offset your mortgage and pay it off faster.


It would be best to prepay your mortgage based on various circumstances, including your financial situation, the availability of other financial resources, and your goals and priorities. But if this is something that is really on your mind, give careful thought to your choices.

Financial advisors are often known for their knowledge of investments and financial planning, but many also have experience with mortgages and property purchases. If you can't settle on a course of action, it might be time to talk to a financial expert in your area.

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