Issues Relating to Prepaying a Mortgage

Here are the issues I look at when determining to prepay a mortgage:

Is there a prepayment penalty?
· What is the rate on the mortgage loan that is being prepaid? What is the after-tax cost of the mortgage? Are there enough itemized deductions to take advantage of the mortgage interest being paid?
· What is the opportunity cost of having the money on the mortgage versus investing it elsewhere? What is the after-tax cost of investing the money elsewhere?
· Do you have three to six months of cash saved in case of an emergency? If you are using all proceeds to pay the back end of the mortgage and find yourself out of a job or disabled for a period of time, where is the cash flow to coming from to pay the current monthly expenses, including the mortgage?

Posted by Boston Institute of Finance