Everyone dreams of one day and no longer being under the thumb of the bank for the mortgage. When people get some extra cash, they often think about paying down or paying off their mortgage, but that may not always be the best idea. Sure, not having that monthly payment is nice, but make sure that’s the best place for the money to go.
Here are several things you should consider if you are considering paying off your mortgage today.
How’s Your Nest Egg?
Paying your mortgage down won’t do much if you end up losing your job and can’t make the monthly mortgage payment. Here’s another idea, instead of putting the money towards the mortgage, place it into an interest bearing savings account.
A good rule of thumb is to have as much as a year’s worth of expenditure in case of an emergency. Do not count on your home equity to bail you out either. With home prices dropping, you may not get nearly as much equity as you think. It is better to have the money in your hand and then put it towards the mortgage principal later.
Should You Pay Other Bills?
How much credit card debt do you have? Often times, the interest rates on those credit cards are much higher than the one on the mortgage. You may be paying a significant amount of interest on your credit cards, which takes money away from your home and family.
If you fall behind on credit card payments, you may end up ruining your credit score. If you find you have a little extra money at the end of the month, put it towards your high interest accounts in order to get rid of those accounts as soon as is humanly possible.
Would You Feel Better With Your Mortgage Paid Off?
So far, the tips I have outlined in this post have all been considerations on why you should not pay off your mortgage, but it really all comes down to your personal view point. If you are a nervous wreck and are constantly worrying about losing your dream home or missing a mortgage payment, then maybe the best thing would be to pay off that mortgage once and for all and take that worry off your mind. It really is a personal preference.
How Much Would You End Up Saving In The Long Run?
The whole point of paying down or paying off a mortgage is to save money on the interest that you are paying every month. With mortgage rates still at record lows, you may find that making multiple payments per month or a one-time lump sum payment may not end up saving you a lot of money in the long run.
The interest on your home is deductible from taxes when you file your 1040 form on Schedule A and not many people think about this when factoring in their savings. If the interest rate on your mortgage is high, then maybe refinancing into a new low interest home loan instead of paying down the mortgage is the answer for you.