Making extra payments on your mortgage may sound like a great idea and for some it is, but maybe not everyone. The thought of paying off your mortgage early can sound good but there are reasons that it may not make sense.
For some, it's a great idea -
-You can increase your net worth – your equity in the home increases and you are in a better financial position
-You reduce your interest expense and can save yourself thousands of dollars in interest
-The "debt stress" of knowing you have that payment to make is gone.
However, there are also as many reasons not to pay off your mortgage early.
How much do you have set aside in liquid savings? Do you have at least 3-6 months of salary set aside to cover emergencies? You want to make sure that if something happened to you that you can still make all your other payments. Make sure you have an emergency savings plan set up so you can eliminate that worry.
Do you have other debt? Do you have credit card balances or a car payment? Those are typically higher interest than a mortgage and you can't deduct that interest payment off on your income taxes. If you have a credit card balance or car payment, work on paying those off before you pay off your mortgage.
Were you looking at setting up a bi-weekly mortgage payment plan? These are designed to make one extra payment a year and make it easier to budget your mortgage payment. If you are looking at these programs, check the fees. Typically they charge a fee to do this and it may not make sense for you. You can pay more each month or make one extra payment a year and do the same thing without a fee. It won't allow you to make the bi-weekly payment, but it will still save the extra payment over a year time span.
Look at your overall financial picture, you may want to talk to a financial planner to see what they recommend. Most will want you to keep 4-6 months of liquid funds for emergencies. Once you have done that and paid off higher interest credit cards, then look at paying off your mortgage. Maybe it's just adding an extra $100/month to the payment – even that will help cut interest and save you money!