How safe is it to spend all my money paying off a house quickly if I have no other cash reserves?

Question

If I get into a bind during the term of my mortgage what will protect me if I can't make my monthly payments? Should I spend the least amount of cash for amortgage and have liquid side investments or pump all my money into the house to try and pay it off quicker? And if I do pump all my money into the house is it really safe during the term of my mortgage in case something happens to me financially and physically?

Answer 1

EEEEK! Don't do this!!! I can't stress that enough. Look, I'm all for paying off a mortgage, and trying to avoid interest, but you can't put all your financial eggs in one basket. First, your mortgage is one of the lowest interest rates you'll ever pay. What if your car goes belly-up? You'll have to replace it at a much higher interest rate than your mortgage is going to cost you. For heaven's sake, investments are probably going to pay you at a higher rate than your mortgage is levying on you. And you rightly point out, if something happens and you can't make your monthly payment, late fees will begin to accrue, this affects your credit rating and other nasty things. When you think about personal finances, you MUST think about diversification. If you have a savings account that can cover emergencies, if you have established an IRA AND a 401K plan, if you have a good mutual fund going, THEN you can see if you can add a little extra to your mortgage payment. To address the last part of your question, I'm not sure I understand, the "is it safe?" part. The more you pay on your principle of your house loan, the more equity you establish, so you could borrow off that, or realize it if you sell the house. But for God's sake, protect yourself, diversify your investments. That is a much sounder financial plan.

Answer 2

I wouldn't pay it off it it means you won't have a safety net in case of unexpected events. You could consider reducing your mortgage to a 15 year fixed rate mortgage. This will raise your mortgage a bit, but it sounds like you're okay with this.

Then you can ask your mortgage company what penalties are applied if you pay it off even earlier than that if your financial situation allows it. Once you're on a 15 year mortgage you should be able to pay against your principle in addition to your mortgage each month. (You can also do this with a 30 year mortgage, of course). By paying against your principle you can reduce the interest that will be accrued over the term of your mortgage.

Most financial experts recommend that you have at least 6 months of living expenses in a liquid account in case of emergencies, so I would start plowing away what you can into a mutual fund or something flexible like that. Once you have that funded you can determine how much extra you can put toward your mortgage and you'll have the safety net of the savings to prevent you from falling behind in your mortgage in case of emergencies.

I admire your goal to get ahead of this big debt!

Answer 3

i would pay off house i know some companys offer insurance on a disability they should have offered it to you through your morgage leander if they dident i would definatley pay off the house ,the insurance pays like half the monthly payment and you pay the other half , but i my self like been out of debt you can always go re morgage the house if neccecery. at least if the house is paids for all you would have to worry about would be your utilitys and your yearly property tax the faster you pay it off the less interest they charge you so you pay off balance shouldent be the balance you have showing on your account it should be cheaper , its the intrest that really gets ya if you would ever fall behind think about the money you would be saving with a early pay off you would be able to start saveing those monthly payment untill you had your cash built back up ,, i would pay off the house and then start sticking the money back into my account just like i was making monthly house payment on my house and keep saving that way take what money you have and tell them you want to pay it towards the intrest if you cant pay the house in full , it will knock a big chunk off of your debt

Answer 4

anytime you can pay off a house, DO IT!!! ALWAYS pay the house off first, if you can, THATS your best investment.refinace your morgage for lower intrests rates when you can,if the house is a dump , needing tons of repairs, then get out from under it by getting a better house.. but anytime you can pay off a morgage fast, do it... it will save you tons in intrest

Answer 5

NICE TAX SHELTER .
SAVING ACCOUNT AND INVESTMENT FOR A RAINY DAY MEANS A LOT...