Our real estate agents help people with all kinds of financial backgrounds to purchase Atlanta homes for sale. Many people have questions about the process of getting a loan—and most are concerned about what it means for their long-term financial health.

A common question we hear at Josey Young & Brady Realty has to do with pre-payment. Pre-payment is the term for paying off your loan before the anticipated date, typically 15 or 30 years from the time the loan is issued.

Some lenders specify that paying off a large loan early will cause the lender to incur a penalty. However, this practice has largely been done away within the world of home loans. In general, if you end up with a windfall of spare cash, you can pay off your mortgage whenever you wish.

It may seem intuitive that the sooner you pay off your mortgage, the better. It's a huge milestone in life and a weight off your mind. However, it's not always wise to take the plunge.

Even if you end up with a large lump sum such as an inheritance or contest winnings that could pay off your mortgage, you might be better off continuing monthly payments.

Why Is It Sometimes Better to Keep Your Mortgage, Not Pay It Off?

Most homeowners today have mortgages with a fixed rate between 3.5% and 5.5%. These aren't the lowest rates of all time, but they are very good. To decide whether it's worthwhile to pay off a mortgage, experts look at the return you could get by investing instead of making that payoff.

The average rate of return for stocks is about 7%.

Most personal finance advisors agree that return is substantial enough to invest a lump sum rather than paying off your mortgage as soon as you can. However, there are some exceptions. If you're in exceptional financial health, it may be wise to pay your mortgage in full.

Before you decide, ask yourself these questions:

1. Do You Still Have Other Debt?
   If you still have other debt such as an auto loan, school loan, or unpaid credit cards, it's best to focus on these rather than on your mortgage. That's because these debts tend to have higher interest rates and may compound more frequently. If not handled with care, they can spiral.
   
   
2. Do You Have Emergency Savings?
   Emergencies—even disasters—happen. Finance thought leaders say that every household should aim for a 12-month emergency fund. This protects you in the event of a medical event or job loss that restricts your income for a period of time.
   
   
3. Are You Saving At Least 20%?
   When you were figuring out how much house you could afford, you probably had to develop a budget. Hopefully, that budget included some savings, and you've been able to stick to it. If you are saving less than 20% of gross income, beef up your rainy day fund ASAP.
   
   
4. Are You Saving for Something Else?
   A home is usually the biggest purchase you'll ever make, but it's not the only major purchase out there. If you've been saving up for other things—a new car, a degree, a wedding, a vacation—it's usually best to pay these first rather than take on new debt for them.

When it comes to buying a home, sound advice is the key to making the right moves. At Josey Young & Brady Realty, we'll help educate you on your options at every step. You can move forward with confidence thanks to our unbeatable expertise. Contact us to find out more today.