Should You Prepay Your Mortgage?

Many financial experts recommend that you prepay a mortgage in order to cut down on the amount of interest that you will pay your lender. While this does have some financial merit, it may not always be the best decision for everyone. Here are a few things that you will need to consider if you are thinking about prepaying your mortgage.

Prepayment Penalty

Before you even consider prepaying your mortgage, you will want to make sure that your mortgage does not have a prepayment penalty associated with it. While this type of penalty is not common, you will find it on certain mortgages. It is more common when dealing with adjustable-rate mortgages. If you have a prepayment penalty, you might have to pay a large sum of money as a result of prepaying your mortgage.

Mortgage Rate

Something else that you should look at is the interest rate that you are currently paying on your mortgage. If you have a high interest rate, then it would potentially make sense to try to pay off the mortgage early. However, if you are an individual has a low mortgage rate, it might make sense to hang onto that debt. There is no point in paying off a mortgage that has a very low interest rate when you could do better things with that money.

Tax Bracket

When deciding whether or not to prepay your mortgage, you also need to look at your current tax bracket. When you pay your mortgage, you are getting a substantial tax break on the amount of interest that you pay. This means that you will need to know how much of a break you are going to be missing out on if you prepay your mortgage. In order to determine how much you will be saving, you need to deduct the interest rate at which you take your deduction on mortgage interest from your mortgage interest rate. If this is confusing, there are a number of online calculators that you can utilize to make this calculation for you.


Something else that you will want to take into consideration is your age. If you are still young and you just took out your mortgage, it might make more sense to try to prepay your mortgage. If you are older and have been paying on your mortgage for many years, it might not make as much sense to prepay your mortgage. Once you have already been paying on your mortgage for several years, the majority of your payment is going to be going towards principal on the loan anyway. 

Other Debts

You will also want to take a look at what other debts you have. If you have debt that carries a higher interest rate, it would make more sense to apply any extra money to paying off this debt first. For example, if you have credit cards, it would make sense to pay these off before you worry about your mortgage.

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