What Happens If You Pay Off Your Mortgage Early?

If you want to pay off your mortgage early, you should know a few things. Here are the pros & cons to help you decide if it's the right move for you.


September 20, 2021

what happens if you pay your mortgage early

Homeownership is a long journey, and there are a lot of things to worry about – from rate hikes to rising repayments and other expenses. But imagine becoming debt free, owning your home sooner and saving thousands on the interest you pay. Wouldn’t that be great?

Of course, if you’re not good at handling your expenses, this can be a nightmare. That’s why it’s important to get expert advice. With the right guidance, paying off your mortgage early can be life-changing and rewarding!

Here’s what you need to know about paying off your mortgage early:

What Happens If You Pay Off Your Mortgage Early?

Should I pay off my mortgage early?

Your mortgage repayment is the combination of the principal amount (outstanding loan balance) and the interest (the rate charged by your lender). If you have an interest-only loan, you’ll just focus on paying the interest for a set period and delay paying off the actual loan. 

However, there’s no definitive answer for whether or not you should pay off your home loan early. It’s a complex decision with many factors to consider, so you should understand both the benefits and risks involved before making a move. There are many pros and cons you should think about before deciding: 

Pros of paying off your mortgage early

  1. Become debt free: Being debt-free is a great feeling. Home loans take a lot of money out of your budget every month, so paying it off early means having more money to spend on things you enjoy. This also gives you peace of mind because you don’t have to worry about monthly repayments that cost thousands of dollars.
  2. Own your home sooner: When you own your home outright, you don’t have to worry about making monthly payments. You can relax and enjoy your home knowing it belongs to you. If you find yourself in a difficult financial situation, you don’t have to worry about your repayments. And, you reduce the risk of defaulting on your loan and losing your home.
  3. Save thousands on the interest: Is it possible to save thousands on the interest you pay? Okay, let’s crunch numbers. Suppose you have a $500,000 mortgage for 30 years with a 2.4% interest rate, and the rates don’t change. If you pay your loan for 30 years, you owe $201,895 in interest. If you add an extra $268 to your home loan repayments, you only pay $165,395 in interest over the life of your loan. This means you save over $35,000 on the interest, and you own the home 5 years earlier!
  4. Build home equity: As you pay off your mortgage, you also build equity in your home. This can be useful if you need emergency funds because you can tap into your home’s equity as long as you have a source of income.
What Happens If You Pay Off Your Mortgage Early?

Cons of paying off your mortgage early

  1. Losing access to features: If you pay off your mortgage early, you may no longer have access to features like the redraw facility. This feature allows you to access additional repayments you made on your loan in case you need extra money. Another key feature you may miss out on is debt consolidation. Home loans tend to have lower interest rates compared to personal loans. Paying off your mortgage early means you can’t consolidate other debts (e.g. personal, credit loans, etc.) into your home loan to have cheaper rates.
  2. No tax deductions from interest rates: If you’re thinking about investing, here’s something you need to be aware of – you can’t get any tax deductions. So, if you buy an investment property and pay it off, you won’t be able to get any tax benefits. Negative gearing is when your investment’s interest and running costs are higher than your investment income. Paying off your mortgage early means you can’t claim this net loss as a tax deduction against your income.
  3. Empty wallets: Nothing is more terrifying than knowing that you have 0 balance on you. Remember that your home loan is a huge expense that takes a toll on your budget. This can be a nightmare if you encounter unexpected life changes. If you use all your savings on your mortgage, you won’t have money left in case of an emergency. So, this may push you to take out additional loans to make ends meet.
  4. Extra fees: Lenders often charge a discharge fee and a break fee (if you’re on a fixed-rate loan). It’s best to check with your lender if you can make extra repayments as this varies.

Should I pay off my loan early or invest?

At the end of the day, it all boils down to your financial goals and situation. If you’re not interested in investing, then paying off your mortgage early might be a good option for you. But, if you want to grow your wealth, you can invest your extra money.

Here are some options you can consider before paying off your loan early:

  • Invest your extra money: Rental properties can be a great way to generate wealth and create another stream of income. If your rental property costs more than it generates, you may also be able to take advantage of negative gearing. Of course, investments can be tricky. But if you do it right with the help of experts, you secure a more comfortable future. Our trusted brokers can assess your best options and offer you choices that will help you invest smarter and better!
  • Keep your home loan active: If you made additional repayments, you may choose to keep your home loan active and not pay your final balance yet. Keeping your home loan active allows you to access extra repayments in case you want to renovate your property or make other big-ticket purchases. Note that this is if you open offset accounts and redraw facilities.

Is it worth it to pay off your home loan early?

There is no one-size-fits-all answer to whether or not you should pay off your mortgage early. If you are unsure if this is right for you, get in touch for a FREE personalised consultation. 

Our expert brokers are with you every step to help you make better and smarter decisions that fit your lifestyle and goals. Plus, you can get more and better options from our access to over 40 banks and lenders!

Have a question? You can always ask with just one click! 

Stay tuned for our upcoming blog about the tips to help you pay off your mortgage early. 





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