Not too long ago, financial advisors encouraged clients to pay off their mortgages as quickly as possible. Times have changed and advisors are now singing a different tune. Although there are still two sides to the issue, legitimate points are proving why homeowners should avoid doubling up on monthly payments or emptying their wallets for one large lump sum. Here are several reasons you should reconsider paying off that mortgage early.
1. Because You Need Emergency Savings
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You never know what your future will bring. You may lose your life-long job. You may fall ill and be forced to take an extended leave of absence. It’s vital that you have a fund for those worst case scenarios. Most advisors suggest that you always have at least six months of living expenses in the bank.
With an emergency fund locked down, you won’t have to rely on high-interest credit cards, or loans if the going gets tough. Until you’ve built up enough emergency savings, it’s smart to pay only the minimum mortgage payment each month.
2. Because it’s Wiser to Invest
Any financial advisor will tell you how important it is that you diversify your money. Investing extra cash in stocks, bonds, IRA’s, gold/silver, and real estate is smart, because if any one of those investments drops in value, you’ll still have other investments to fall back on.
Paying only the minimum of your mortgage payment will allow you to invest your additional income in areas that’ll make you money over the years. On the other hand, once you’ve unnecessarily put extra money into your house, it’s gone until you sell your home.
3. Because it’s the Better Debt to Have
Currently, mortgage rates are at an all time low. They’re so low that you’re essentially borrowing money for free once you factor in both inflation and tax deductions. Many people consider your mortgage a “good debt” to carry, since the typical 30-year fixed rate is as low at 4%. Rates for 15 years and ARM loans are even lower.
The average credit card interest rate is 11%. With at least a 7% difference in rates, your credit card debt is a priority. Homeowners should pay down their credit card debt before even thinking about making more than the minimum mortgage payment.
4. Because Real Estate isn’t a Liquid Investment
Once you’ve thrown all your worth into your home, there’s simply no way to get that money back. Your money is all tied up in your home until the day you sell it. Once again, it’s much more sensible to diversify your money.
If you’re money savvy and in the market to buy a new home, plan on devoting some serious time comparing mortgage loans as well as homeowners insurance quotes. Since your home ownership isn’t the best kind of investment, it’s important to make sure you’re spending as little as possible on top of the home’s actual sale price.
These are only a few of the reasons you should hold back on paying off your mortgage early. Other considerations like your children’s’ future educations, your retirement, splurging on NFL Sunday Ticket, and even your desire to take vacations are additional reasons you shouldn’t put all of your money into your home.