Which Is Better – Overpaying Your Monthly Mortgage or Saving the Money?
We read a lot these days about how to pay down your monthly mortgage early. But is it a good idea? Here is some information to help weigh the pros and cons and decide which is best for you.
Here are some reasons why you’d want to overpay your monthly mortgage:
- You want to eliminate debt
- You’re close to retirement
- You’re worried about what you owe versus what your home is worth
- You’re considering downsizing
- You’re considering relocating
- You plan to live in the home for the rest of your life
- You have a variable income and/or you’re worried about job security – your plan is to use the money you have now while you’ve got it
- Interest rates are high
- Rates are adjustable and you think yours are about to go up
- You really want to be secure, stable and debt free
However, there are also valid reasons why you could better off saving the money:
- You need the cash for day-to-day living
- You don’t have a nest age or cash reserve
- You don’t have much other debt (Having just a mortgage with no car payment or credit card bills is a financially sound way to pay off debt)
- You’re young and have years to pay it off
- Interest rates on your home are low
- You need to save for college
- You need to pay off student loans
- You need to pay off credit card loans
Weighing the Pros and Cons
The bottom line is, which do you need more? How important is the security of knowing you have a stash of cash ready in case of emergency, and cash on hand to use as you need it? Paying off your mortgage with all your extra cash could mean you’re “house-rich and cash poor.”
You don’t want to find yourself living in a wonderful home and having no money to pay your bills or put food on the table. On the other hand, you might find that paying off your home leaves you with the bulk of your monthly bills taken care of – maybe you have something in mind you want to use it for?
Whatever your situation, weigh the pros and cons carefully and consider speaking with a financial advisor. Your age, your job security and that of your spouse, combined with other outstanding loans and debts and future plans will be the deciding factors. Whatever your decision, know that what’s right for one person may not be right for another.