If you have the money, you may consider paying your VA loan off early. Luckily, there aren’t any prepayment penalties on VA loans, so you are free to do so. While it sounds great to be free and clear of your mortgage, it’s not always the right choice.
Keep reading to learn if paying your VA loan off early is right for you.
Do You Have the Money?
First, consider the cost of paying your loan off early. It requires you to make extra payments towards your principal either on a monthly, annual, or lump sum basis. Either way, you are giving up extra money and investing it in your home. It can be a good thing as long as you have the extra money.
Consider what you are sacrificing by investing that extra money into your home. Do you invest elsewhere? If you don’t, you won’t have a diversified portfolio. What if housing values tank again? You could lose all of your money. You should consider investing in other areas before paying your mortgage off early.
Do you have money in a liquid savings account? This is called your emergency fund. What if something disastrous happens? Do you have the money to pay for it or will it all be tied up in your home? You may be able to get access to the funds with a home equity loan, but it won’t happen overnight. It’s best to have the emergency fund stocked before paying your loan off early.
Do You Max Out Your 401K Contributions?
If you have ‘extra money’, you should look around to see where it has the best fit. One place you should always focus first is your 401K, especially if you get employer contributions as well. Know the maximum amount you can contribute to get the employer contribution and do it. Don’t put that money towards your mortgage.
If you don’t max out your 401K contributions, it’s like throwing money away. Your employer will match your contributions free of charge. Even if it’s only a small amount, it’s money you can add to your retirement account which will grow through the years. Investing it in your home won’t have the same growth.
Do You Have Money for the Cost of Living?
One final thing you should think about is your cost of living. It doesn’t make sense to force yourself to sacrifice in the daily cost of living just to pay a little extra towards your mortgage. Today, interest rates are low enough that your savings won’t be that tremendous. While it’s nice to not have a mortgage payment, it’s not necessary to make yourself suffer. More often than not, when homeowners sacrifice, they end up regretting it and some even default on their mortgage because of the choices they have to make. Don’t put the stress on yourself if it’s not going to help you.
So does it make sense to pay your VA loan off early? It can, if you are in a great place financially. Make sure you are secure in your daily cost of living, emergency savings, and other investments. It’s a lot of pieces to juggle, but with the right time and patience, you’ll get to the point that you can pay extra towards your VA loan and pay it off, even if just a few years early.