Don't Pay Off Your Mortgage Yet
Many homeowners dream of the day when their mortgage is finally paid off. They look forward to not making any more house payments and having the satisfaction of owning their home free and clear. Some homeowners try to use aggressive tactics to pay off their mortgage--tactics like having a 15-year term on their fixed-rate mortgage or a bi-weekly mortgage. But some mortgages carry pre-payment penalties which are fees you have to pay for paying off your mortgage early.
And while paying off your mortgage is a worthwhile financial goal, sometimes, it may not necessarily be the best use of your money, depending on your circumstances.
You may have lots of high-interest credit card debt that you need to pay off. Your money may be better spent paying down your debt. This could have a positive effect on your credit and lead to a lower interest rate should you need to refinance for any reason later on or apply another loan for, say, a car.
If your employer offers a match to your 401k, then it might be a smarter use of your money to put more toward your 401k account. These are pre-tax dollars that will be saved for you when you retire and will help ensure your financial stability in the future.
Plus, the interest rate on your credit card may be as high as 15, 20, or even 30 percent whereas the interest on your mortgage is probably around seven percent or less. Interest on your home loan is tax-deductible*, according to Uncle Sam. Interest on your credit cards is not. Better to pay off your credit card debt with non-tax-deductible interest first.
Paying down your high-interest credit card debt, contributing more toward your 401k or other higher-return investments, or even saving money for things like your children's college tuition may be better uses for your money than paying down your mortgage. While it depends on your individual situation, you should think about all the other ways you could use your money. After all, it's your money and your decision. If you're not sure what you should do or if you still have questions, speak to an experienced home loan expert.
*As always, please consult your tax advisor.
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