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When to Start Really Paying off the Mortgage

Living in Oklahoma City and owning your home is an exciting accomplishment. However, we all know that the mortgage that accompanies homeownership can be a life sentence. With the other costs that crop up throughout life, when is the best time to start aggressively paying your mortgage down so you can be done with it once and for all? Let’s examine.

Build up savings.

Paying off your home in lieu of building a rainy day fund is not a smart move. If you suddenly find yourself facing a layoff, you need to be prepared to sustain up to one year of living expenses.

Pay your other debts.

Pay off all credit cards with high interest rates. Consider the huge discrepancy between credit cards with interest rates of 13% – 23%, and a 4% mortgage interest rate.

Feed your retirement fund.

Aside from a rainy day fund, you need a retirement fund. Are you able to make the maximum yearly contributions to your retirement accounts, 401K, IRA or an equivalent?  Ask your accountant what the maximum allowable is for you and go for it!

Put your kids through school.

College funds need to be started sooner rather than later. Depending on how many children you have, how old they are, and what type of college enrollment expectation they have, you need to be making adequate contributions to those 529 plans or other college savings accounts.

Once you handle these things, you can start planning to pay off the mortgage. If you want to retire and be mortgage free by age 65, then calculate how much extra you will have to pay monthly or yearly to pay it off by that date.  There are numerous calculators online that will help you do this.

There is something very freeing about the release of that last mortgage payment when you switch to a fixed income such as retirement.  Plus, chances are you will not need the mortgage interest deduction.

One thing to keep in mind: the banks have very cunningly structured mortgages so that they get a large portion of their money early on via interest sooner than later over the 30 years. You pay a brunt of the total loan interest in the beginning of your mortgage agreement.