Why paying off your mortgage faster might not always make sense
For the most part, paying off your mortgage quicker makes sound financial sense. But there are times where it may be wise to put extra money towards a different goal:
Paying off ‘bad’ debt first
Paying off ‘bad’ debt first – some debts, such as a personal loan or credit cards, have a higher interest rate than others – in other words, they are more expensive to keep. And while your mortgage is providing you with a home and helping you build wealth in the long term, debts from credit cards and shorter-term loans often only harm our finances.
Building up emergency savings
Building up emergency savings – having emergency savings can make a big difference to your stress levels and get you out of a pickle if something unexpected comes up. A good rule of thumb is to have six month’s worth of income stashed for a rainy day. In the event of redundancy, unplanned home or car repairs, or injury or illness, for example, you’ll have a pot of money to fall back on.
Contributing to super
Contributing to super – making sure you have enough money to live on in retirement is right up as one of the most important things you can do for your future self. Making extra super payments could make a big difference to your retirement savings – and save you on tax.
Working towards other goals
Working towards other goals – whenever you make any money decisions, it’s always important to keep the bigger picture in mind. You may have other goals, for example, that require you to save your money instead of paying it off your home loan. Starting a family or switching careers can be much easier if you have some extra money up your sleeve.
Source: IOOF