Is it a good idea to pay off my mortgage early? What affect will that have on my score and how quickly will it go up?
Paying off your mortgage early shouldn’t hurt your scores, but it probably won’t help them much, either.
The important factor from a credit scoring standpoint will be that the mortgage loan is paid in full and on time, whether that is before the last payment is due or if it’s made right on schedule. You might see a slight dip in your scores initially, because of the instability represented by the status change. However, the scores will likely bounce back up in a month or two.
Your credit scores should not be the only consideration – or even the main one – when deciding whether to pay off your mortgage early. There are many other factors to consider when determining whether it is a smart financial choice for you.
How much will you save in interest cost by paying off the loan early?
It may be a considerable amount. Be sure there aren’t any early payoff penalties that could offset that savings.
Will paying off your mortgage help repay other debts?
With no mortgage payment, you may be able to quickly reduce other debts you have, which will help your credit scores and reduce your financial stress.
Even if you don’t have other debts, you may find that diverting extra income to an investment account, such as a company-matched 401(k), yields better returns so that you can retire sooner.
What are the tax implications?
Mortgage interest you are paying may provide a significant tax deduction. Understand what the implications are for your tax bill before you paying off the mortgage.
Because there are so many factors, consider consulting with a financial advisor before making such a decision. A good advisor can help you understand all of the financial implications of paying your mortgage off early so that you can make the right decision for you.
Thanks for asking,
The “Ask Experian” Team