If you own an investment property, paying off the mortgage early might seem like a great way to ensure a positive cash flow and clear out a major debt. While paying off the mortgage on a rental or commercial property can be the right financial move in some situations, it can also cost you a lot of money in the long run. Below are a few things to consider before dropping a lot of capital into an early mortgage payoff.

The Pros & Cons of Paying off a Mortgage

When Paying off the Mortgage Might Work Out

If your rent payments are less than the maintenance, mortgage payments, and taxes, paying off the mortgage can make your property cash-flow-positive, freeing up funds for other investments. Clearing the debt on the property will also substantially increase your actual income, which can help secure funding for other investment properties.

Whether or not paying off the mortgage is a good idea might also depend on the returns you’re earning on your other investments. If the rate of return on your portfolio is less than the interest rate on your mortgage, using those resources to pay off the debt will likely net you more in the long run.

When You Should Wait

Paying off the mortgage on investment properties isn’t always the wisest financial choice. For example, if you’re already turning a profit every month, it’s probably best not to disturb a favorable situation. If you’re planning on acquiring more investment properties, you should also reconsider paying off the mortgage on the first one, since that capital can be used to expand your portfolio. Likewise, if your current investments are earning more than the interest rate on the loan, liquidating those funds can actually cost you even more in the future.

Securing funding for an investment property can be complex and confusing, which is why buyers throughout Ames and Des Moines, IA, rely on Howell Investment Finance for guidance and expertise. They’ll help you navigate the complexities of the process and find the perfect loan for your needs. Visit their website to learn more about their available mortgage programs, or call (515) 233-8228 to speak with a broker today.