Your retirement income vs having no more mortgage. And the winner is …
Have you ever heard "you should pay off your mortgage first" from friends or family.” While having no more mortgagepayments to make every month would be nice, it may not be best for you until your other debts are taken care of. Don't be surprised when you get the recommendation to pay off you mortgage ASAP from your famliy as it is often passed down from generation to generation. It sounds like an option you need to consider, doesn't it?
Here's why you hear that advice passed down through generations.
Your grandparents probably knew people who had to give up their homes to the bank in the depression.
Those experiences couldn't help but leave an impression that would last for the rest of your life. It's not hard to understand why the older generation pushes you to pay down the mortgage first. It's ingrainedin them and a natural measure to take in life. After that time, the laws were changed so the banks could no longer call a mortgage on demand.
Look at how much more it all cost us today.
The home your grandparents had when you were growing up probably cost them well under ,000. In their time it was common for you to have a job at the same company for up to 30 years that came with a pension. They had a fraction of the credit card debt you may have if they had any at all. The credit cards we are so familiar with today were not available to many if at all at that time. Their new cars were only a fraction of the cost of ours. They also enjoyed far less expensive medical costs.
Our costs and debt loads have risen considerably. Depending on where you are, you can pay 0k or 0k today for a home. Layoffs and new opportunities will cause many people to change careers or employers several times before they retire. Job security is almost unheard of. Don't think your employer is too big to have problems. Most companies are at risk in today's market. Even if you run your own business you don't have a guarantee of safety.
It's unlikely today that you'll see a pension. Most people are lucky to get access to a 401k. Are you contributing a large enough amount to your 401k. Most other people are under contributing to their 401k plan and not basing contributions on future needs.
One other thing your parents may not have had was credit card debt, or much of it. And if so, no where close to the levels being carried by today's families. Credit card debt is out of control and balances totaling over k are not uncommon for a family who probably has 1 or 2 auto loans too.
What else do we need to look at?
It's time to revisit the mortgage pay off advice and the timing too. I don't recommend paying down the mortgage until the benefits are clear and you aren't losing somewhere else. The biggest benefit you get with your mortgage is over the first several years when you can focus on other more expensive debt. It's a simple interest debt, unlike credit cards. Because of these factors the mortgage loan is usually labeled your cheapest personal debt.
The debt that can ruin you the fastest is almost always credit cards. It uses compounded interest against us and steals from your retirement every day that you carry it. You could see your rates climb as high as 24% or higher and get hit with fees you aren't expecting. And you don't get the tax benefits you do from your mortgage with this.
When you're looking at how best to beat your debt look at which debts to eliminate that give you the most benefit and may help in other areas too. Around a third of your credit score is made up of revolving credit, which includes compounded interest rate credit cards. So accelerating the pay down of this debt can also benefit your credit score faster than normal.
We could get on track to having no more mortgage but we need to continue to look at what our real needs could be.
Keep your future in mind while working on the present.
Have you looked at your future retirement needs and compared that to the contributions you're making? You are in a small club if your retirement fund is keeping pace with your projected income requirements in retirement. It has been estimated that less than 10% of us will retire with an income that will enable us to enjoy the lifestyle we hope for in retirement. Writing a check for over 0 is not something many retirees can do without creating financial stress. Is that the retirement you want?
Your mortgage may not be the best place for extra payments once the other debts are paid off if your retirement fund is lacking. Then bring in a retirement planner to help you map out a path to get you back on track.
One of the last things you want to do is get advice from friends. You need to remember that your friends are often in just as much debt as you are. We often tend to spend time with friends who are much like we are.
So does that "pay down the mortgage first" advice sound the same as it did before? Life is not as simple as it was for your parents, and you have to carry more debt today if you want a home. You have plenty to look at before taking your next step financially.
The missing numbers you need to know.
You need to find out where you really stand with your debt and how long it will take you to get out of it. Every debt you are paying against and any you have deferred. How do you do that? You can not just add up your balances on your statements. The interest and # of payments won't be captured that way. You can get this information easily and without a lot of work on your part.
You can get a debt analysis at no cost or obligation on paying off your debt and having no more mortgage here that will show you exactly how much your debt is going to cost you based on how you pay everything today. It will also show you how much you can save by looking at options and doing things differently. By providing some simple information on the debts you carry they will create your analysis for you.
You'll find you make better financial decisions when you have better information. You'll watch your spending closer when you know how much debt you really have. Get your analysis and take a good look at where you stand and start making better decisions in regards to your finances.
Tags: no more mortgage, nomoremortgage