Paying off your mortgage can provide peace of mind and is a worthy goal, but is it the best thing for you to do now?
The first thing to consider is whether you have a higher interest rate debt currently. If you have credit card debt with double-digit rates or personal, car, or student loans, you'll probably save more money in interest by paying these things off before you pay off your mortgage, which is usually one of the lower rates on debt.
Many financial advisors also recommend funding your annual retirement contribution before paying down a mortgage. If your company offers matching funds for your contribution, you would be leaving money on the table by not making the contribution to your retirement. For instance, if your company matches, putting $5,000 into your retirement would yield a $10,000 value.
Creating an emergency fund is another favorite suggestion of financial advisors. When the rainy day arrives, and you need funds, it may be challenging to get money from your home's equity, especially if you have lost your job. Six months' worth of living expenses is a good target to have available should you need it, and a year's worth is even better.
Children's college funds may be another priority that takes precedent overpaying off your mortgage. Whether you're saving or investing to pay for their education, it will cost more than it did when you were in school.
When you are ready to start paying off your mortgage, decide on the best way to do it. Regular principal contributions every month are very predictable and get the job done. Setting up automatic bill pay with your bank will assure that you don't re-prioritize that extra amount every month.
If you go this route, it's essential to ensure that the lender applies the additional payment amounts to the principal and not to the escrow account.
Prepaying a loan will save interest, build equity, and shorten the term on a fixed-rate mortgage. Please give us a call if you'd like to chat about the best option for you.