If you have reached a point in your life where you are making additional income, you may be wondering how to best use the extra cash. Should you invest your money into stocks, bonds, or a retirement account? Should you pay off your mortgage ahead of time? In this guide, we take a deeper look into each of these options, to arm you with the knowledge you need to make the best decision for you.
When thinking about the best way to pay off your mortgage early, it is important to consider the timeline of your mortgage so far. If you have just begun your amortization period, paying off your mortgage early will be far more beneficial than if you are nearing the end of your mortgage loan. Within the first few payments you make, most of your money is going towards covering the interest expense, and very little is helping to pay down the principal. The sooner you pay off your mortgage, the more you can save on your overall interest expenses. If you are nearing the end of your mortgage, it may be a better use of your money to pursue alternative investments.
Another common repayment strategy is refinancing. By exchanging your current loan for a new loan, you may be able to negotiate a shorter amortization period, lower interest, and more. If you choose to pursue this strategy, conferring with a Clover Mortgage in advance broker can help. We have experience working with over 70 different lenders—and can help connect you to the best ones for you!
As with any big decision, paying off your mortgage early has both advantages and disadvantages. Here are a few of the potential upsides you may want to consider:
Of course, there are also potential downsides you should consider:
As you consider the pros and cons of paying off your mortgage early, you should also consider the pros and cons of making alternative investments. Here are a few potential upsides of investing your money instead of paying off your mortgage:
Of course, there are also potential downsides of making alternative investments. Here are a few to look out for:
Unfortunately, there is no cookie-cutter solution to suit all borrowers. You will need to carefully consider the pros and cons of all the options available to you, in order to make the best choice for your unique financial needs.
Before making a decision, consider how much it would cost to pay off your mortgage early. Is the money you will save through interest and becoming debt-free a bigger priority for you than putting money away to grow your future wealth?
One thing to keep in mind is that it is very possible to pay off your mortgage early while simultaneously pursuing alternative investments—and many people do! Pursuing both goals may limit the amount of money you can dedicate towards either one, but can ultimately provide you with greater financial flexibility. One way to do this is by refinancing to a shorter loan at the end of your next term. This strategy will increase your monthly payments in the short-term, but allow you to pay off your mortgage sooner while still retaining enough cash to funnel into alternative investments.
A final consideration to make is that you do not need to choose between paying off your mortgage and investing your cash. There are many alternative uses of money that you can consider. For instance, some individuals prefer funneling their money into an emergency fund, to hedge against unforeseen financial disasters. Other people prefer to pay off other existing debts, such as their outstanding credit card payments.
It is important to clarify that we are not accountants, licensed investment advisors, financial planners, or lawyers. These are just strategies that some have found helpful in the past. Prior to making any investment decision, you should consult the right professionals which may include financial planners, investment advisors, accountants, lawyers, and others.
The number of choices available to you can be overwhelming, but working with a Clover Mortgage broker can help. Having had decades of experience in their respective fields, our experienced team can help you weigh your options, and recommend the best course of action for your unique financial needs. If you are looking to refinance your mortgage, we can also help ensure you get the best terms and lowest rates. Contact Clover Mortgage to book your free consultation today!