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.
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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.