5 Reasons Not to Pay Off Your Mortgage Early
As a responsible debtor, you may be tempted to make extra payments on your mortgage. However, this might not be the best idea, depending on your current financial situation. In fact, there are a number of reasons not to pay off your mortgage early. Whether it's due to the fact that you have other debt or haven't saved enough in other areas, you may want to rethink your decision. Here are just five reasons not to pay off your mortgage early.
[Yahoo! Voice: Contributor tips and tricks for saving on a moving truck.]
You Have Credit Card Debt
Mortgages have better rates than credit cards. Why pay down a mortgage that has 5% interest when you have credit card debt that carries a 18% interest rate? If you're carrying credit card debt, you need to pay it off first before you even think about paying off your mortgage early.
You Don't Have an Emergency Savings Account
It doesn't do you much good to get ahead on your mortgage when you don't have an emergency savings account. It doesn't matter how great your job is things happen. It might not even be layoffs at your company, it may be an accident that leaves you disabled or out of work for several months. You need to have at least 3 months salary in your savings account. Start with a goal to save a thousand and then go from there.
You Aren't Putting Enough Towards Retirement
You may be putting a large percentage of your check into a 401(k), but you also have other options. For example, you could also be socking money away in an IRA. Consider all your retirement options before trying to pay off your mortgage early.
You Don't Have a College Fund for Your Children
While paying off your mortgage early may seem like a great thing, you need to have all your finances in order first and this means having a college fund set up for your children. A 529 plan allows you to earn tax-free interest and is a great way to save for your child's education.
You're Throwing Money Away
Why put the extra money from your paycheck towards paying down your mortgage when that money could be earning interest? The money you pay ahead on your mortgage gets 0% return. However, if you put that money into a retirement fund or even a regular savings account, you will earn interest. It may not be much, but it's better than nothing.
The simple truth is it may not make financial sense to pay off your mortgage early. However, if you find that you've covered all the bases and still have money left, you may be able to pay ahead on your mortgage, but why do so? Save or invest that money so that you get a return.
[Yahoo! Voice: Contributor tips and tricks for saving on a moving truck.]
You Have Credit Card Debt
Mortgages have better rates than credit cards. Why pay down a mortgage that has 5% interest when you have credit card debt that carries a 18% interest rate? If you're carrying credit card debt, you need to pay it off first before you even think about paying off your mortgage early.
You Don't Have an Emergency Savings Account
It doesn't do you much good to get ahead on your mortgage when you don't have an emergency savings account. It doesn't matter how great your job is things happen. It might not even be layoffs at your company, it may be an accident that leaves you disabled or out of work for several months. You need to have at least 3 months salary in your savings account. Start with a goal to save a thousand and then go from there.
You Aren't Putting Enough Towards Retirement
You may be putting a large percentage of your check into a 401(k), but you also have other options. For example, you could also be socking money away in an IRA. Consider all your retirement options before trying to pay off your mortgage early.
You Don't Have a College Fund for Your Children
While paying off your mortgage early may seem like a great thing, you need to have all your finances in order first and this means having a college fund set up for your children. A 529 plan allows you to earn tax-free interest and is a great way to save for your child's education.
You're Throwing Money Away
Why put the extra money from your paycheck towards paying down your mortgage when that money could be earning interest? The money you pay ahead on your mortgage gets 0% return. However, if you put that money into a retirement fund or even a regular savings account, you will earn interest. It may not be much, but it's better than nothing.
The simple truth is it may not make financial sense to pay off your mortgage early. However, if you find that you've covered all the bases and still have money left, you may be able to pay ahead on your mortgage, but why do so? Save or invest that money so that you get a return.
Published by Amy Brantley - Featured Contributor in Lifestyle
A passionate writer who specializes in food-related content and has hopes of changing the way people think about cooking. Has published over a thousand pieces of food-related content. Amy is available for wr... View profile
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7 Comments
Post a Commentexcellent tips! thank you!
How true- although, last year, when the economy was tanking and so were my stocks, I found solace in putting my extra cash towards my mortgage. At least by doing that I was knocking off the 4.25% interest rate I have on my house.
I totally disagree with, "You're throwing your money away." If you make an extra payment and write, "for principal only," on the check you will not be paying interest on that payment, saving you that interest (which is probably more than you can earn from a savings account on the same amount of money). Also, if you make just one extra payment a year in this way you can cut payoff time on your mortgage nearly in half, which will also save interest. But you need to be aware that making a payment in this way does not mean you can skip a payment down the road. You will still have to make your regular payments on time. Everything else you mention is worth thinking about.
Thanks, I never thought about the things you mentioned. Great write.
You brought out some valid points, Amy.
Sophie
good info
College is vital for our children in this day and age. Great info. Thanks