Tuesday, April 23, 2013

Why Not to Pay off Your NOVA Mortgage Early


Budgeting to pay down the mortgage on your Northern Virginia or DC home may seem like a great idea at the time, but the truth is it doesn't make that much sense given the low-interest rates available.
What should be on your short-term to-do list, or rather where you should be placing the extra savings you planned to put into your mortgage, is building your emergency fund or retirement savings before all else.

"Today's low rates mean you're basically borrowing money free when you factor in inflation and tax deductibility," Greg McBride of Bankrate.com told Yahoo. "Making a larger payment is foolish if you're not doing things like saving for emergencies or retirement first."

With today's low-interest rates, paying off your mortgage early actually has more drawbacks than advantages. Consider where your savings should really be allotted, where you need it most, before channeling it into that low-cost, tax-deductible mortgage only to shave off a few years of payment.

For instance, do not consider paying extra on your mortgage before you:

1. Pay off all of your high-interest credit card balances
2. Build your emergency fund to cover at least six months of living expenses in case of a lost job or other financial setback
3. Make significant contributions to the college-savings plans of your children or other dependents' future education
4. Make the maximum contribution to both you and your spouse's individual retirement funds or 401(K) accounts

As very few people can say they have achieved every item on that checklist, it is best you consider the advantages to contributing to the above items to secure your financial future before channeling that money into an extra mortgage payment on your NOVA home. Just remember, the longer you save for retirement, college, and building emergency funds, the better off you'll be when the time comes to use them. In the long run, you will appreciate saving for the future now and paying off the mortgage later.


Earle Whitmore

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