Is Paying off Your Mortgage the Best Bet with Extra Income?

If you're working on paying off your home, you might wonder if a windfall or a salary increase might be best directed to your monthly house payment. Surely, if you were to pay off your home more quickly, it might be better for your financial future, right? However, as with any financial move, you need to consider all of the ramifications of your actions before you begin. That extra money may just be what you need to fund other more profitable moves.

First of all, there's nothing wrong with paying off your mortgage when you have extra money. For those that are close to the end of their mortgage or who want to sell their home off, this is actually a great idea. It will help to free up a lot of money every month that you can use for saving up for a newer and bigger home. Some people also like the idea of simply owning their home and being able to pass it along to someone else in their family at that point. If you simply don't like the stress of having that additional debt, paying off your mortgage may be a great financial move.

But if you have extra money, you might want to consider other ways you can use that money in your life, rather than helping to pay off your home:

You could invest the additional money � When you go and invest the additional money you have, you can increase the overall profits of having that money, which can help with your retirement funds or with a second home. You can put the money into a high earning fund and then watch it grow at a faster pace than your mortgage payments. As you earn that extra money, you might be able to eventually pay off your home anyways.

You could put the money into savings � By placing the money into an interest earning account, you can begin to create a nest egg that will help you in the case of an emergency or your losing your job. It is ideal that you have at least six months of savings in place in case you should need it, so if you don't have that nest egg and you do have extra money, start building that up before you pay down your mortgage.

You could buy another home � If you've always wanted a timeshare or another property to rent out, you might want to use additional money towards those ventures. Chances are good that they will pay off more in the long run to help you pay down your mortgage payments.

You could make home improvements � When you increase the value of your home with additions or improvements, you are only going to increase the value of your investment and the amount of money you can sell your home for when you decide to sell.

That said, if you have an ARM mortgage, you might want to use any additional money that you have toward paying down that type of mortgage. Because you can't always guarantee that your payments will be low, working to pay down that loan quickly is the best way to minimize the interest rate chances and their impact on your life.

By: Grant Eckert