While it may go against your natural instincts, it’s not always a good idea to pay off your mortgage as quickly as possible. This may seem like a big contradiction to everything you’ve been taught about debt in the past. We are trained to be responsible and that means paying off your debt. However, before you start making additional mortgage payments, it’s important to assess your immediate financial situation. There may be better things to do with your money in this period so that you can pay off other debt or increase your savings. Six reasons not to make that extra mortgage payment include:
Credit cards
Lots of people have credit cards, and the media is full of horror stories about credit card debt. Although you may not be swimming in this type of debt, it’s important to remember that your credit cards often carry a higher interest rate than your mortgage. This means that if you’re not careful, you’ll end up paying more to your credit card company when you could have caught up and nipped the debt in the bud. Think about it: Why would someone consider paying a 5% home loan when they have a credit card interest rate of 16%? If you have a bit of credit card debt, consider putting your extra money toward reducing it.
No emergency funds
If you have extra money, you might consider starting a savings fund, which can be used for unforeseen emergencies. Not having emergency funds is dangerous, as many things can happen. For example, you could lose your job, have an accident, or become disabled. All of these things can result in a dramatic loss of income, as well as increased bills. Everyone should aspire to have a minimum amount in the savings account equivalent to about three months of salary. Instead of paying off your mortgage early, take the time to cover your bases for the future.
A basic retirement fund
Many people may feel that a 401K is enough to retire successfully. This is not always the case, especially with the economic changes affecting the country. There are many other options to help supplement your retirement fund, such as using an IRA. Consider talking to an accountant about your current investment situation, so you know if you need to consider opening other accounts.
Your children do not have a university fund
It can be very tempting to pay off your family’s house early. Unfortunately, there are always things to pay for in life. While owning a home is a top priority, it’s important to make sure your other financial obligations are handled. College expenses are adding up fast, and unless you want to rack up a lot of student loans for yourself and your child, you should consider starting a college fund if you haven’t already. There are college fund options that earn tax-free interest. Your money can grow safely and your child’s future can be secure.
The mortgage does not generate interest
One reason you may want to pay off your mortgage early is that you may be close to retirement and would rather not have an additional bill each month. Unless you are in this category, your money would be better spent. Paying off your mortgage early is the same as wasting your money. You are not making money on your mortgage payments and you are missing out on opportunities to earn interest. Even a regular savings account will earn you more money than making an extra mortgage payment.
Are you moving soon?
We all want to own a home, but many people don’t stay in the same residence for more than ten years. So you have to ask yourself if you plan to stay inside that house for the next thirty years. If you don’t plan on staying for the entire life of your mortgage, trying to pay it off quickly is a waste of time. Although you will get this money back at the time of the sale, you will not have earned any interest and will essentially receive back the same money you invested. To make matters worse, inflation can be a serious problem and can cause you to lose money if you consider how much that money was worth at the time you made the payment and how much it is worth at the time you pay it back. If you know there’s a chance you’ll move, get more bang for your buck.
The fact is that many people are not in a situation where paying off a mortgage quickly is the most financially sound option. If you’re not sure how to proceed with your finances, consider talking to a professional. They will be able to lay out all of your options on the table in front of you so that you can at least make an informed decision about whether to make that mortgage payment early.