Considering the factors and what is best for you.
Should I pay my mortgage off early?At the very beginning of the Covid -19 pandemic rates went drastically down based on the uncertainty in the global financial markets. This had a harrowing effect on lenders, the direction of rates, and the stability within the U.S. economy.
At the very beginning of the Covid -19 pandemic rates went drastically down based on the uncertainty in the global financial markets. This had a harrowing effect on lenders, the direction of rates, and the stability within the U.S. economy. I have had well over 500 conversations with past clients over the course of the last month to help them navigate potential opportunities to better their financial position. One topic comes up over and over again. How do I pay my mortgage off faster? What’s the rate on the 15 year? Well I don’t want to lose 3 years and go back to a 30 year mortgage? Should I make an extra payment every year? It goes on and on with people focused on paying off their mortgage.
First off, I don’t think that paying off your mortgage is a bad thing. This isn’t me advocating for carrying debt for no reason. I just think it should be the last focus of your overall financial options.
Here is my personal list of recommendations for you:
1. Tax Advantaged Debt
Focus on any non potentially tax advantaged debt first. Right now there aren’t as many benefits for taxes with your mortgage interest (although that might change) but there has never been a benefit to focusing on accelerating mortgage debt faster than credit card or other personal debt. Chances are your mortgage is at a mid 3’s level percentage and everything else is higher than that.
2. liquid savings
Focus on liquid savings. I suggest 3 months of overhead in a general savings for cash flow and a 3 month emergency fund in a higher saving rate option with your financial planner. If you don’t have a planner, let me know. I would be happy to recommend some.
3. insurance
Life insurance and disability insurance. So you bought a house and created that asset on your balance sheet. How are you going to protect it for your loved ones if something tragic happens to you. Or what if you get hurt at work and keep paying the bill. It costs very little to get these insurances in place to help protect your assets.
4. planning
Long term planning is your next step. Do you have a 401k with a match? Pay up to the match. Then focus on any Roth IRA options to help with tax free growth. When those are maxed take a step back toward fulling funding your 401k.Education important to you? Will it be to a child or grandchild. Fund a 529 college savings plan next.
5. pay yourself
Have you finished everything you could to pay yourself first? Now it’s time to focus on the mortgage. If you have some extra cash flow, start paying some extra. Remember, the mortgage balance is the same no matter what term you pick, 15 or 30 years (we have odd number years too). You can turn your 30 year mortgage into a 15 just by making the 15 year payment on it. With 30 year rates in the low 3’s now and projected to potentially be under 3% next year, there is minimal advantage of being locked into the higher payment of the 15 year. At this point of the plan you have already shown the discipline to be able to allocate assets wisely.
The Conversation
Mortgage equity is a great asset. But that asset isn’t liquid when you need it, earns no rate of return, and if the market drops out you lose that value so it isn’t always the safest option either. If you want to work on a tailored mortgage plan (in conjunction with your financial planner), or how to get a new home to start down this path; please contact me at:
brian@teamhuntonmortgage.com
Everything is conducted electronically and through video.
Failing to plan is just planning to fail.
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