Before You Pay Off Your Mortgage...
You come up with a lump sum cash (through inheritance, stock gains, etc) that is big enough to pay off the remainder of your mortgage. Should you pay off the mortgage or not in this case?
This is a pleasant problem to have. Before deciding, you should look at the following three things:
1. You need to have set aside an emergency fund that covers 6-12 months of your wage. This is because when emergencies arise, you may need to tap into cash right away, and even though you have equity on your house, converting that equity into cash can take time.
2. Make sure you pay off other higher-interest debts first. Pay off your credit card balance and your car loan before you pay off your mortgage. This is because credit card balance and car loans carry a higher interest rate than your mortgage, and you want to pay off the debt with the highest interest rate first. In addition, the interest you pay on your mortgage is tax-deductible, while the interest you pay on your credit card debt and your car loan cannot be deducted.
3. Check to make sure your mortgage does not have a prepayment penalty. Prepayment penalty on mortgage is not uncommon, and having to pay a prepayment penalty sometimes means that you actually don't save much by paying off the mortgage before it's due. Do the math if you do have a prepayment penalty on your mortgage. Better, make sure you get a mortgage without a prepayment penalty.