Sometimes, people find themselves coming into a little extra money whether that be a raise, inheritance, or other avenue. One major consideration on how to use that money is to pay off your mortgage sooner. However, this may not be a great idea for everyone. Here are some pros and cons of paying off your mortgage early.
SAVE IN RETIREMENT
Knowing that they own their home free and clear can provide a level of liberation to people, especially those who are nearing retirement age. Not having to worry about making that monthly mortgage payment while on a fixed income can free up a huge portion of their budget allowing them to do more of what they want to do in their golden years.
If you aren’t a great saver, paying off your mortgage may put you in a situation where you have more wiggle room to put money aside that you would have used to make a mortgage payment in your savings instead. It has been suggested that people have at least six months worth of expenses in savings in the event of unemployment or emergency.
You may be missing out on additional funds by putting that money towards paying off your home as opposed to other investments instead. Sit down with a financial expert to find out if the money you would save in interest is equivalent to other potential investments you could be making with that money.
LESS LIQUID ASSETS
It’s recommended that a certain amount of your net worth be in liquid assets. This means it’s something that can be sold for cash quickly, such as stocks and bonds. A home is a non-liquid asset because it can sometimes take weeks or months to sell. If the majority of your net worth is in non-liquid assets and you find yourself needing cash quick, it could lead you to take out loans.
DISCLAIMER: This article is intended to be a helpful guide. If you have specific questions or concerns regarding your financial situation, please reach out to a financial advisor.