Most homeowners look forward to the day when they make their last mortgage payment, and many make extra payments or seek lower interest rates so they can pay off their mortgage early. While paying a mortgage off early gives you extra money each month, it may also increase your annual income tax payment.
Once you no longer have a monthly mortgage bill to pay, your living expenses decline. This gives you more money each month you can invest, use to pay off other debt, or use for other expenses.
Taxes And Insurance
Your mortgage bill likely included an amount that was set aside in escrow each month and that paid your homeowners insurance and property taxes. Once your mortgage is paid off, you must pay these bills directly.
Income Tax Deduction
When you pay off your mortgage, you can no longer deduct your mortgage interest from your annual income tax. If you itemise, losing this deduction may bump you into a higher tax bracket.
When you pay your mortgage off early, you save on the interest you would have otherwise paid on that loan. For example, if you have a 30-year, £162,500 mortgage at 6 per cent interest that you pay off nine years early, you save nearly £65,000 in future interest payments.