So you find yourself with a little bit of extra money – perhaps due to a raise, an inheritance or an unexpected windfall?
Should you put all of your money toward paying down the mortgage on your home? Or would you be better off placing your extra cash into a savings account?
Deciding whether to pay down your mortgage or add to your savings is a complex choice and it depends on a number of factors in your personal financial situation.
Here are some of the things that you will need to consider when making the decision:
How Much Are Your Savings Earning?
Take a look at the savings accounts where you are keeping your money and assess the interest that your savings are earning. Is your money earning more in savings than you would save by paying down your mortgage earlier?
Does Your Mortgage Have Overpayment Penalties?
Some mortgage lenders will charge you a fee if you try to repay your mortgage earlier than the agreed upon term. Check with your lender to find out and calculate whether the extra costs will outweigh the benefits you get from overpaying your mortgage. If they do, put your windfall in savings instead.
What are Your Other Debts?
It doesn’t make sense to be overpaying on your mortgage if you have a lot of credit card debt that is charging you an enormous amount in interest. Prioritize your high-interest debt first before you think about overpaying on your mortgage.
Do You Have An Emergency Fund?
You should always have an emergency fund in cash that will protect you from having to use expensive credit card debt if an unexpected payment comes up such as a burst pipe or a flat tire on your car or if you lose your job.
A good rule is to have the equivalent of three to six months of savings in a bank account just in case you need it. This is a first priority and only when you have this emergency fund established should you consider overpaying on your mortgage.
These are just a few of the important factors that you should consider when deciding whether to overpay the mortgage on your home or place the money in savings. For more information, contact your trusted mortgage professional.
- What’s Ahead For Mortgage Rates This Week – October 3, 2016
- Credit Score Got You Concerned? Here’s 3 Ways to Get It Together
- 3 Things That Determine Your Mortgage Interest Rate
- Thinking of Buying a Second Home? Assess Your Finances First
- Why Your ‘Debt-to-Income Ratio’ Number Matters When Obtaining a Mortgage
Mark Taylor | Arizona Home Loans | Blarming | Will You Listen to Me | Arizona Short Sales | Arizona Foreclosures | Arizona FHA Loans | Arizona USDA Loans | Real Estate Websites | Arizona HUD Homes | Ariona VA Loans | Fix My Broken Credit | Arizona Mortgage | Arizona Short Sale | Power Ranch Bank Owned Homes
Our Team | Arizona Mortgage | Blarming | Will You Listen to Me | Arizona Short Sales | Arizona Foreclosures | Arizona FHA Loans | Arizona USDA Loans
| Arizona HUD Homes | Ariona VA Loans | Arizona Mortgage | AZ Short Sale Help | Power Ranch Bank Owned Homes | Find me on Google Earth | Arizona Mortgage Sitemap
AmeriFirst Financial, Inc., 1550 E. McKellips Road, Suite 117, Mesa, AZ 85203 (NMLS # 145368). 1-877-276-1974. Copyright 2014. All Rights Reserved. This is not an offer to enter into an agreement. Not all customers will qualify. Information, rates, and programs are subject to change without prior notice. All products are subject to credit and property approval. Not all products are available in all states or for all loan amounts. Other restrictions and limitations apply. License Information: Click Here for Licensing