By Mark
Taylor
February 05, 2014 07:04 am
Have you find yourself with a little
bit of extra money – perhaps due to a raise, an inheritance or an unexpected
windfall?
Are you wondering if you
should 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.