 TITLE: Should I Pay Off My Mortgage Early? CONTENT: What to Consider Before Paying Off Your Mortgage Early\n------------------------------------------------------\nSo if you have enough cash on hand to make extra mortgage payments each month (or quarter, or even annually), or if an inheritance or other windfall gives you a chance to pay off your mortgage in full, why wouldn't you? Here are some considerations:\n*   **Have you maxed out your retirement savings?**  \n    Before you look to reduce your mortgage debt, make sure you've fully funded any 401(k) plan you have through your employer, plus any personal individual retirement accounts (IRAs). For 2019, you can contribute a maximum of $19,000 to your 401(k), up from $18,500 in 2018, and $6,000 to a personal IRA, up from $5,500 in 2018. If you're over 50, you can increase those contributions by $6,000. The tax advantages of these contributions, along with the potential for long-term growth in your retirement investments, make them the first place you should be stowing any windfall you've received.\n*   **Do you have a hefty source of emergency cash?**  \n    A house you own free and clear is a significant piece of wealth, but it's not something you can quickly convert to cash in a crisis. Selling a home often takes months, even in a strong housing market. You can secure a home equity loan more quickly, but even that will likely take a few weeks, and it would put you back in debt—possibly at a significantly higher interest rate than you had on your original mortgage. So before you sink a large chunk of cash into settling your mortgage, make sure you've set aside a healthy \"rainy day\" fund—at least enough to cover six months' worth of household expenses.\nIf you answered no to either of these questions, you should consider organizing your finances until you can answer yes to both—and before you make it a priority to pay off your mortgage early.\nHere are some additional questions you should ask before deciding to complete your mortgage payments ahead of schedule. More than one of these considerations may come into play in any given household, and it may be helpful to consult a financial planner or accountant to help you sort out and prioritize all that apply to you.\n*   **Is there a prepayment penalty on your mortgage?**\n    They are rare in new mortgage contracts, but some older mortgages contain requirements that you must make a balloon payment of several thousand dollars if the loan is paid off ahead of schedule. If your mortgage contains such a prepay penalty clause, you'll want to compare the penalty amount with what you'll save in interest by paying off the loan early to make sure you don't lose out on the deal and to make sure (at the very least) that you don't lose money by triggering a penalty.\n*   **Can you make more by investing your money than you'll save by paying off your mortgage (and do you want to if you can)?**  \n    Some financial pros equate paying off your mortgage early to opening a savings account that pays you interest at the rate you borrowed at, for the rest of the loan's lifespan. That's great, but if you got a good rate on your mortgage—as many did when rates were at historic lows following the 2008 market crash—that \"return\" may be fairly modest compared with what you'd get by putting your cash into stocks or mutual funds. If you're getting close to retirement and already have your nest egg organized, that may not be a big concern. But if you're nearer to the start of your career and working to accumulate retirement wealth, you may want to consider investing your spare cash more aggressively, rather than paying off the mortgage.\n*   **How much do you rely on mortgage interest deductions to offset your federal income tax?**\n    If your total mortgage amount is $750,000 or less, you are eligible to deduct mortgage interest payments on your federal income tax return, so paying off your mortgage early could increase your annual tax bill. The impact on you will depend on your income and tax bracket, how much interest you're currently paying on your mortgage, and what other deductions you may qualify for. Consult with your financial advisor about the tax consequences of paying off your mortgage early, for the current tax year and the years ahead. END