This seems like an easy question, but it’s not. A home mortgage is one of the largest debts most people incur during their lifetime and paying it off can contribute to greater financial freedom for retirement. But, depending on your individual financial situation, using that little bit of extra cash each month on other items may make more financial sense.
High interest credit card debt
Credit cards carry higher interest rates on outstanding debt than your mortgage interest rate. If you have large credit card balances that rollover from month to month incurring interest charges, it may be a wiser use of your extra cash to pay off these balances first before applying extra cash to your mortgage payments.
Saving for an emergency fund
Life can be very unexpected. Cars break down, homes need repairs, and unfortunately, sometimes medical emergencies occur. Having three to six months of income stashed away in savings can help you through those tough times. Before making extra payments on your mortgage, establishing an emergency fund may be the wiser choice.
Experts agree that when you are planning for retirement the earlier you can start setting money aside for retirement investments the more those funds can grow over time. Contributing to a 401(k) each month, especially when your employer will match some of those funds, may be the wiser use of extra cash.
Not your forever home
It’s not uncommon for someone to own several different homes during their lifetime due to job changes, familial status changes or simply wanting to live somewhere new. The National Association of Realtors (NAR) reports that from 1985 to 2008 the median tenure of time in a home was six years. Since 2008 that length of time increased to nine years. This is largely attributed to falling home values and a slow economy. The point being, if this is not your forever home, then making additional payments on your mortgage may not be the wisest choice for you at this time.
Buying a home later in life
If you are a senior citizen or you are retired and are purchasing a home with a 30-year mortgage, it may make more financial sense to keep more cash in savings instead of making extra payments on a mortgage that may outlive you. Medical expenses tend to increase as we age, so it may be wiser to have cash readily available instead of placing those extra funds into your mortgage.
How, when, and where you spend your extra funds is as individual as you are. Consult a financial planner to see what options may be best for you.
By: Marlene Sheard
Marlene is the mortgage marketing representative for Ameris Bank and previous Sales and Marketing President for her local Home Builders Association who enjoys sharing her experiences in the buying, selling, and financing of homes.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.