Advantages And Disadvantages Of Paying Off Your Home Note
Lots of articles give home owners tips about ways to get a home loan paid off as quickly as possible. It is true that you may save money on your mortgage payment in the long run. However, when you consider all of the things you need to do with your money, that extra cash may be better off if it is used somewhere else. You need to consider your own situation before you decide.
Consider some of these basic home owners tips to decide if you should add extra money to your own payments so you can get your mortgage paid off faster. Every home owner has a different situation. It is impossible to come up with one simple solution that works the best for all of them. But there may be a best answer for you. You have to think about the real cost of the balance on your loan vs. the real cost of other debts or savings.
Do you have a loan with a low mortgage. If you do have a low interest rate, then you are getting to use some very “cheap money”. You are also deducting the interest on your home loan. So the real rate you pay is even lower. In this case, you may be able to think of better uses for the extra cash that you would have put towards paying off your balance.
Is your retirement account fully funded? If not, you can also get a deduction for contributions to it. You could pay extra cash to pay off your loan. Or you could put more money into an IRA or 401K. The interest on that, plus the extra retirement savings tax deduction, may leave you better off.
By the time you arrive at retirement, you are likely to be in a better financial situation that way. So you see, that you will be able to save money with 2 deductions on your income taxes. Without the retirement account and the mortgage, you would lose 2 deductions.
Are you still paying off other loans? You will save more money if you spend your extra cash to pay down high interest rate credit card balances. That should probably be a higher priority than a lower interest rate home loan. Unsecured debt, or even an auto loan, probably have higher interest rates than a mortgage does. Keep the cheap money loan in place and pay off higher interest rate loans first. It does not make sense to try to pay off a mortgage with a five percent interest rate while you still have large balances on credit cards with twenty percent interest rates!
Do you have some cash set aside for emergencies? A visit from the air conditioner repair guy is a lot easier when you can write a check for his services. If you lack savings you may be much better served by setting up an emergency fund!
I know how important it is to reduce a mortgage. However, it may be better to keep a lower interest rate home loan for a bit longer so you can get some of your other financial needs taken care of. Paying a mortgage off fast may not always be the best idea.