Given current economic pressures, many people are trying to erase debt from their financial picture and focus on saving and safer investments. Americans are paying down their credit cards and cautiously borrowing money. Not surprisingly, paying down the home mortgage has become an attractive option for people in a financial position to do so.

However, paying off your mortgage isn’t necessarily something you always want to do. It turns out there are various considerations you should weigh to decide whether paying off your mortgage is the right move. Let’s take a look at some of the factors that could influence your decision:

Do you have other debt?
If you are still paying off a car or carrying credit card debt, then paying off your mortgage shouldn’t necessarily be your first concern. It all comes down to interest rates. Chances are your mortgage carries the lowest interest rate you have. Why prioritize paying off a loan at a much lower interest rate when you should be prioritizing paying off more expensive loans, such as credit cards?

Peace of mind.
For many, paying off the mortgage brings a psychological benefit. It’s true for many people that they are not happy when they owe money; it represents an insecure state of personal finances for them. That’s completely understandable, but curbing an emotional response to consider how you can best make your money work for you is probably the best way to go. For some, that could indeed be to pay off the mortgage. For others, it might make more sense to stick to the original term of the loan. The best rational outcome should ultimately prove the most psychologically satisfying.

Taxes.
If you pay off your loan early, you will lose the ability to write off the mortgage interest you have paid during the tax year. That can amount to a considerable deduction. However, don’t be oversold on this issue. If you don’t itemize your deductions, or are confident that you won’t be itemizing by the time you pay off your loan early, then this might not apply.*

Make sure to do the math.
As mentioned, your money should be working for you, so you need to take a moment and determine the most beneficial way to use your capital. Paying down your mortgage is one way, but can you get that money to perform better for you through investing? Whichever is the higher rate will be the strategy you want to pursue. Then again, you also need to factor in the taxes that will come into play if your investments pay off. How will capital gains taxes fit into the equation?

Remember that your home is an investment.
The equity you place in your home will most likely pay you back quite well. While the real estate market has dips, it has been on an upward trend in the broader sense. Moreover, if you pay off your home, you’ve now eliminated a major expense from your retirement budget, which means you’ll need less money to retire. That said, you are sacrificing diversification and the ability to rapidly respond to new opportunities.

Inflation can work for you, believe it or not.
Working on the assumption that there will be inflation in the coming years, what you pay now as a mortgage payment will be relatively less in 10, 20 or 30 years. So if you pay off early, you lose the opportunity to have inflation actually work to your benefit for a change.

Putting yourself in a less secure situation with a lender.
It sounds counter-intuitive, but paying off a mortgage can actually hamper your flexibility to make your money work for you, because your money has gone to your lender, as opposed to an investment where it can work for you and from which you can draw income. In today’s employment landscape, that’s an important consideration.

As you can see, deciding whether or not to pay off your loan early is not a cut-and-dried decision by any stretch. It requires a long, careful look at the numbers and potential life scenarios to determine the smart play. For some it will be to pay off the loan early, and for others paying the loan off in its original term is the way to go.

If you’re considering paying off your loan early, I’d love to review all the considerations with you so that you can make the right decision for you. Simply contact me using the information on this message, and I’ll be happy to help you carefully consider the pros and cons.