It’s not uncommon to hear homeowners say one of their financial priorities is to pay off their mortgage as quickly as possible. The First Preston HT Blog team hears this topic discussed all the time from people in their early 30’s to those nearing retirement. The thought of being debt free and owning your home free and clear brings a sense of security and comfort.
The financial crisis that began in 2008 is still fresh on our minds and has led many people to approach their finances, including their mortgage, with a more conservative nature, think along the lines of “pay off all debts and save, save, save.” This seems like fairly logical and prudent advice.
But the decision to refinance into a short-term loan or make extra mortgage payments might not be the best advice for everyone. If you are nearing retirement and don’t have an adequate amount in your retirement funds, directing your money into an illiquid asset (your house) might be a bad decision. Here are a few points to consider before choosing to pay off your mortgage as quickly as possible.
Do you have enough money in savings? It’s very important to have an emergency fund that can cover three to six months’ worth of living expenses. Earlier data from Bankrate.com indicates that only 38% of Americans have enough money in savings to pay for unexpected expenses. This is a goal that everyone should work toward regardless of whether you are a recent college graduate or nearing retirement. If an emergency occurred like losing your job or needing a serious surgery, your home equity can’t pay these bills.
Do you have “bad debt?” You have probably heard the terms good debt and bad debt in regards to your credit score. Bad debt includes high interest credit card balances. Pay off these balances to keep from paying the attached high interest rates. This will get you one step closer to achieving your debt free goals. As a bonus, your credit score should improve which will be helpful if you do decide to refinance to a shorter term loan.
Are you maxing out contributions to your retirement accounts? If you are just starting out in your career it’s a great idea to begin contributing a portion of your monthly earnings to a retirement account. The power of compounding rate of return should not be underestimated! For those closer to retirement, specifically if you are 50 or older, the IRS allows what they call “catch up contributions” to be made to your IRA and 401(k). These contributions are also tax free unless you have Roth accounts these funds are directed to.
If you have a solid emergency fund, have paid off all your bad debt and are maxing out our retirement contributions then you might consider paying off your mortgage in a shorter time frame. If you don’t consider yourself financially savvy, seek financial advice from a profession who can look at your personal financial situation offer customized advice.
First Preston HT hopes you found this information useful and that it will encourage you to plan for your financial future. For information on effective ways to manage institutional and individual portfolios nationwide, or to shop for real estate visit First Preston HT. Like us on Facebook. Follow us on Twitter.