It’s long been said that one of the most important decisions and moments in one’s financial life is the acquisition of a new home.
Most people will never make a purchase more costly, or more significant in terms of their overall financial picture. It’s no understatement to say that the purchase of the right home can make or break your finances for the next several decades. However, because buying a home has achieved such an iconic status in our culture, there are a number of “conventional wisdom” style truisms that have cropped up around the process. Additionally, are all of these maxims really beneficial to our financial health?
For instance, consider that old adage that one of the most sound financial decisions you can make is to make double payments on your mortgage while you’re still young. Of course, the reasoning behind this is quite sound. When you’re young, you’re at your most resilient; you can spring back from setbacks and stay on top of matters. If you lose your job at 50, it can be harder to find another one than it would be if you were 30, for instance. So, in line with this way of thinking, it makes perfect sense that you’d want to have your mortgage paid off as soon as possible. Besides, doing so also enables you to relax in your later years. A winning situation all around!
Unfortunately, all advice is dependent upon the context in which it is given and mortgage advice is no exception to this. The wisdom in making double payments on your mortgage is subject to yet another maxim that holds precedence over it: always do the most profitable thing with your money.
One grim fact makes things a lot different today than in, for example, your parent’s time: the economy is in smoking shambles! Therefore, in some instances, it may well be more important for you to keep your assets liquid – after all, if you pay the money into your mortgage, there’s no way you can ever retrieve that money, except by refinancing, which is something that no one wants to do.
When dealing with situations like this, you have to ask yourself one critical question: could my money be put to better use elsewhere? In a high-cost market wherein all of your other expenses are well under control, you might well be best served to make those double payments on your mortgage, just so you’ll be adequately prepared in the event that things take a turn for the worse in the future. Of course, our current situation isn’t an ideal one. Most people are short on liquid assets, and besides that, the market is at an all-time low.
That being said, it’s probably best to realize that this recession isn’t going to last forever. However, no one knows how long it WILL last. This means that extra money you pay into your mortgage right now may be money that you sorely need tomorrow. At the same time, those assets could be put into low-cost stocks or some other form of interest-accruing savings, so that you’re still making an investment in the future, but one where you can still get at your money if you need to.
In any financial situation, don’t just default to the conventional wisdom – always use your head, and think about the context you live and work in.
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