April 28th, 2017 6:42 AM by Jackie A. Graves, President
At first glance, paying off your mortgage early sounds like a surefire way
to save beaucoup bucks in interest and put more money in your pocket. But some
financial experts warn that while prepaying your mortgage might sound
appealing, it’s not always the best choice.
Over at Forbes, writer John Wasik warns that prepaying your mortgage can rob you of
I was prepaying our mortgage off for years, then other things came into
view: We had two daughters we wanted to send to college. We needed to stockpile
cash to cover out-of-pocket medical expenses, which really paid off when we had
a catastrophic health event.
So, how do you know if making extra mortgage payments is right for you?
Here are three questions to ask yourself before committing to an early mortgage
Are your retirement savings where you want them to be? If not, prepaying
your mortgage isn’t a smart move, writes Wasik:
Unless you have
sufficient home equity and plan to obtain a reverse mortgage in
retirement (offered starting at age 62), having the cash in a retirement plan
is a better option.
If you’re facing burdensome credit card or medical debt — or some other
significant debt – “put any excess funds toward those instead of paying your
mortgage faster,” says Newsday.
Although some prefer the debt snowball method — which suggests that you
pay the debts with the lowest balances first to build momentum — it makes more
financial sense to get those with the higher interest rates out of the way
first. The ultimate goal is to pay off debt, however, so the choice is yours.
Ask yourself whether you can spend the money elsewhere and get a bigger
bang for your buck. As MTN founder Stacy Johnson writes in “Ask Stacy: What’s the Fastest way to Pay Off My
If you’re paying 4
percent on a debt and earning 5 percent on savings, you’ll be better off adding
extra money to your savings rather than paying down a debt, because you’re
making more on your savings than you’re paying on your borrowings.
This isn’t to say that prepaying your mortgage is not the
right choice for you. If you weigh the factors above and do it right, it can
really pay off. That’s true even if you’re simply rounding up your monthly
mortgage payment by $20 or $50 a month — a tip included in “7
Painless Ways to Pay Off Your Mortgage Years Earlier.”
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