Things to consider before you pay off your mortgage
Many people have in thought about repaying their mortgage early. They have been thinking about making extra payments every month of they should just pay it all off at once. Everyone is looking forward to having their mortgage finished off early and when they no longer have to write checks every month. While others are thinking about paying off their mortgage early, some are worrying about their other bills and expenses and whether or not it should go to just their mortgage. So which one is better? Have a look at some of the considerations made in deciding to pay early or not.
1. Do you know how much you'll be saving on your mortgage? Well, for some people, it's not a lot because of low interest rates that can be deducted from your taxes. A 25% tax bracket with a 4% mortgage rate will give you an after tax rate of 3%. If you think that your rate is still high, then why not give refinancing a try? This will help you determine how long it would take to recover any costs you will pay in a refinance. But even with a high interest rate or unhealthy credit score report, you still have to check your savings for other options that are available.
2. If you don't have enough savings for emergency purposes, then you might want to think twice in paying down that mortgage of your. It is best to keep 3-12 months worth of expense money in your savings account. Some people think that paying their mortgage early will minimize their need for emergency money because they can borrow from their home equity, the problem is, your home equity can go down easily anytime. And even if you have a lot of home equity, your mortgage company has the ability to cancel your line of credit any time and they usually do that when you really direly need the money. Your home equity is good for home improvement and college funding, but don't ever use it as your emergency fund.
3. Take advantage of your retirements account before making your mortgage payments. If you don't, you won't be getting that free money that you can get just by asking. Even so, you'll be better off contributing to your retirement plan because of the tax benefits and the high returns on your investments. A study has been conducted and it is said the 38% of households are paying of their mortgage while their retirement plan contributions are losing the benefits up to 17%. The benefit would be smaller but it would be more applicable to invest in stocks in taxable accounts because their long term returns are up to 10%
Take your time in deciding what to do to avoid neglecting other important matters. Consider the things mentioned above and don't put your finances at risk. Manage your finances wisely and you'll finish off your mortgage in no time.
1. Do you know how much you'll be saving on your mortgage? Well, for some people, it's not a lot because of low interest rates that can be deducted from your taxes. A 25% tax bracket with a 4% mortgage rate will give you an after tax rate of 3%. If you think that your rate is still high, then why not give refinancing a try? This will help you determine how long it would take to recover any costs you will pay in a refinance. But even with a high interest rate or unhealthy credit score report, you still have to check your savings for other options that are available.
2. If you don't have enough savings for emergency purposes, then you might want to think twice in paying down that mortgage of your. It is best to keep 3-12 months worth of expense money in your savings account. Some people think that paying their mortgage early will minimize their need for emergency money because they can borrow from their home equity, the problem is, your home equity can go down easily anytime. And even if you have a lot of home equity, your mortgage company has the ability to cancel your line of credit any time and they usually do that when you really direly need the money. Your home equity is good for home improvement and college funding, but don't ever use it as your emergency fund.
3. Take advantage of your retirements account before making your mortgage payments. If you don't, you won't be getting that free money that you can get just by asking. Even so, you'll be better off contributing to your retirement plan because of the tax benefits and the high returns on your investments. A study has been conducted and it is said the 38% of households are paying of their mortgage while their retirement plan contributions are losing the benefits up to 17%. The benefit would be smaller but it would be more applicable to invest in stocks in taxable accounts because their long term returns are up to 10%
Take your time in deciding what to do to avoid neglecting other important matters. Consider the things mentioned above and don't put your finances at risk. Manage your finances wisely and you'll finish off your mortgage in no time.
