The chances of your credit score being affected by paying off your mortgage are very small. This move may decrease your credit score if your home mortgage is the only loan that you have that you are paying by installment. And even if you are in this situation, you need not worry because the effect is minimal and you can easily ignore it particularly if you want to get the mortgage payments out of your mind.

Paying off the mortgage will also provide you with the advantage of making sure that you will not be late or even default in your mortgage payments. Of course, these will no longer be possible if you have paid off your loan, so that this move could prove to be beneficial despite its effect of lowering your credit a little bit. Also, if you have other loans that you are paying monthly aside from your mortgage, the negative effect of paying off your mortgage on your credit score will even be smaller.

As we can see from the above discussions, the impact of paying off your mortgage on your credit score is counter-intuitive. Most people would actually expect their credit scores to improve if they pay off their mortgage. However, the credit bureau that computes your score likes to see a person to have a combination of several kinds of loans. This situation is given a 10 percent weight by the credit bureau.

On the other hand, you can counter the negative effect of paying off the mortgage by ensuring that you have a good payment history, say for 15 to 30 years. This situation is given a bigger weight of 35 percent so you really have a good chance of countering the decrease in your score by paying your loans promptly.

Some experts believe that cash is king. They argue that simply paying off a mortgage and tying up your cash in a declining asset is not a wise decision in these turbulent financial times. From unemployment to declining real estate values, having cash on hand that is liquid may be paramount in surviving the future.

I tend to agree with this philosophy and feel that cash should be saved and stored as opposed to be used to pay down debts. But if cash is plentiful around your house, then maybe it’s a good idea.

Moe Bedard
My name is Maurice "Moe" Bedard. I am the founder of America's #1 Mortgage Forum, LoanSafe.org. My online work has been featured in the New York Times, LA Times, Fox Business, and many other media publications.