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MoMo Productions/Getty Images July 20, 2022 Checkmark Bankrate logo How is this page expert verified? At Bankrate, we take the accuracy of our content seriously. "Expert verified" means that our Financial Review Board thoroughly evaluated the article for accuracy and clarity. The Review Board comprises a panel of financial experts whose objective is to ensure that our content is always objective and balanced. Their reviews hold us accountable for publishing high-quality and trustworthy content. Peter G. Miller is a contributing writer at Bankrate. Peter writes about mortgage rates and home buying. Bankrate senior editor for mortgages Bill McGuire has been writing and editing for more than four decades at major newspapers, magazines and websites. John Stearns, CMC, CRMS is a Senior Mortgage Loan Originator with American Fidelity Mortgage. Bankrate logo The Bankrate promise
At Bankrate we strive to help you make smarter financial decisions. While we adhere to strict editorial integrity, this post may contain references to products from our partners. Here's an explanation for how we make money. Bankrate logo The Bankrate promise
Founded in 1976, Bankrate has a long track record of helping people make smart financial choices. We’ve maintained this reputation for over four decades by demystifying the financial decision-making process and giving people confidence in which actions to take next. Bankrate follows a strict , so you can trust that we’re putting your interests first. All of our content is authored by and edited by , who ensure everything we publish is objective, accurate and trustworthy. Our mortgage reporters and editors focus on the points consumers care about most — the latest rates, the best lenders, navigating the homebuying process, refinancing your mortgage and more — so you can feel confident when you make decisions as a homebuyer and a homeowner. Bankrate logo Editorial integrity
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Bankrate’s editorial team writes on behalf of YOU – the reader. Our goal is to give you the best advice to help you make smart personal finance decisions. We follow strict guidelines to ensure that our editorial content is not influenced by advertisers. Our editorial team receives no direct compensation from advertisers, and our content is thoroughly fact-checked to ensure accuracy. So, whether you’re reading an article or a review, you can trust that you’re getting credible and dependable information. Bankrate logo How we make money
You have money questions. Bankrate has answers. Our experts have been helping you master your money for over four decades. We continually strive to provide consumers with the expert advice and tools needed to succeed throughout life’s financial journey. Bankrate follows a strict , so you can trust that our content is honest and accurate. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions. The content created by our editorial staff is objective, factual, and not influenced by our advertisers. We’re transparent about how we are able to bring quality content, competitive rates, and useful tools to you by explaining how we make money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products and, services, or by you clicking on certain links posted on our site. Therefore, this compensation may impact how, where and in what order products appear within listing categories. Other factors, such as our own proprietary website rules and whether a product is offered in your area or at your self-selected credit score range can also impact how and where products appear on this site. While we strive to provide a wide range offers, Bankrate does not include information about every financial or credit product or service. The dream of owning a home might more accurately be described as the dream of paying off a . It might seem like a no-brainer to get rid of your home loan as quickly as possible, but before you raid your bank account to make payments ahead of schedule, here’s what to consider.
Benefits of having a mortgage
Credit score boost: Having a mortgage and making regular monthly payments can help . “Good” debt: A mortgage is often considered a “good” — or at least worthwhile — debt to carry. Frees up your money for other goals: To , you might need a large sum of cash. If you continue to pay your mortgage at a steady monthly rate, you can put that sum to other, possibly better, uses or goals. Tax benefits: As long as you’re still paying your mortgage, you’re eligible for the . Drawbacks of having a mortgage
Having debt: Many folks strive to be completely free of debt. A mortgage is a large debt to take on, which can make some borrowers uncomfortable. Paying interest: When paying a mortgage, some of your money is going toward the interest. Some might view that as money wasted, as it’s not going toward repaying the mortgage itself. Risk of rate change: If you don’t have a fixed-rate mortgage, you risk your loan’s interest rate increasing over time. Mortgage vs no mortgage How to make the right decision
Aside from being an option for those unable to buy a home outright, one major benefit to financing has been the ability to write off mortgage interest. When you deduct your mortgage interest, your payments don’t decrease month to month, but your income taxes for the year do, lowering your costs overall. (In many cases, your state income taxes would be lower, as well.) This deduction historically made having a mortgage more attractive for many homeowners. However, with the Tax Cuts and Jobs Act of 2017, the standard deduction increased to the point where it no longer made sense for many taxpayers to itemize their deductions, effectively eliminating the mortgage interest write-off. , on the other hand, has some advantages. You don’t have to qualify with a lender or make any monthly loan payments, including paying for . In addition, you don’t have to pay interest like you would with a mortgage. To compare, if you were to buy a $320,000 home with a 5.81 percent, 30-year loan, and make a 3 percent down payment, the interest over the life of the loan totals $346,131 — money you’re spending in addition to the purchase price of the home. With a cash purchase, you’d spare yourself that cost. Cash has drawbacks, however. One problem is that your liquidity is limited — when real estate is owned free and clear of all mortgage debt, it can be difficult to extract cash. You can get financing, of course, but that raises all the issues associated with obtaining a mortgage: approval, cost, possibly mortgage insurance, etc. Owning a home without a mortgage may not be as “free” as it seems, either. The cash you used to purchase the home is now money that can’t be used for possibly better alternatives, such as investing, starting a business or paying for education. Ultimately, the decision hinges on whether there’s something better your money could be doing. Can you keep making your monthly payment and put the remaining money in investment vehicles that’ll help it grow? If so, you might want to stick to your repayment schedule. If you value peace of mind more than anything and want to own your home outright, it might be worth making payments ahead of time. SHARE: Peter G. Miller is a contributing writer at Bankrate. Peter writes about mortgage rates and home buying. Bankrate senior editor for mortgages Bill McGuire has been writing and editing for more than four decades at major newspapers, magazines and websites. John Stearns, CMC, CRMS is a Senior Mortgage Loan Originator with American Fidelity Mortgage. Related Articles