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Many people sign mortgage and will eventually pay it over 30 years, or no matter how long it is planned. But what if you managed to pay off your mortgage ahead of schedule? If this is the case, in the future you will not have to come up with money for the monthly payment, which means that you have a great opportunity to use this freed up money to good use. Here are some options.
1. Increase your emergency savings
Perhaps your home will pay off, but that doesn’t mean that nothing will break down in it in the coming years. That’s why it never hurts to have a strong one emergency fund as a homeowner. And now that you don’t pay your mortgage lender every month, you can put some of that money into your savings account so you are protected from unscheduled bills.
2. Save money for your children’s education.
If you have kids going to college, you probably know how expensive it can be. Now that you’re not on the hook for your mortgage, you can set aside money to pay your tuition bills. In this regard, you have several options. You can open traditional brokerage account and invest that money, or you can open the 529 plan, which offers some modest tax breaks but is a little more restrictive.
FROM 529 plan, you can invest in education and any profits in your account are tax deductible as long as they are used for qualified expenses such as tuition. The upside of the 529 plan is that you can change beneficiaries, so if you have two children and one of them decides not to go to college, you can use your money for your second child without any problems. The downside is that if you withdraw money for non-educational purposes, you will be subject to a 10% penalty.
3. Focus on building a retirement nest.
You will need money to cover your living expenses after retirement, so now that you don’t have a mortgage, now may be the right time to increase your spending. IRA contributions. This is an especially good idea if you have underfunded your retirement plan specifically to pay off your mortgage faster.
What’s more, not having a mortgage can allow you to retire early. But then again, you will need savings to feed yourself at this stage in life, so the more money you can set aside for retirement, the better.
Does the early repayment of the mortgage make sense?
By paying early on your mortgage, you save money on interest – potentially a lot of money. But there is an alternative price here. By investing this money in your home, you are missing out on the opportunity to use it for other purposes, such as saving for retirement. If you can comfortably pay off your mortgage ahead of time without sacrificing other goals, then this is not a bad thing to do. Just make sure you pay your rent early for the right reasons – and that you have a plan for how to make the most of your money when you no longer have your mortgage.
Historic opportunity to potentially save thousands on mortgages
Interest rates will likely not stay at multi-year lows for much longer. That’s why taking action is critical today, whether you’re looking to refinance and cut back on your mortgage payments or are ready to pull the trigger when buying a new home.
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