https://www.youtube.com/watch?v=KNs7bkpbA5M&list=WL&index=2&t=17s

Happy Financial Friday! Today, we're going to be talking about when paying off your mortgage aggressively is not a good idea. So if you're new to the channel, I'm a mortgage lender licensed in 48 states. All I do is talk to people about money all day long, look at their income, look at their assets, talk to them about their future, and this is one of those topics that comes up a lot because I'll have clients where they're like, "Hey Jen, you know I've got a couple of extra hundred bucks, should I be putting that towards my mortgage?" So here's what I want you all to consider. Yes, paying off your mortgage is the American dream and it's the ultimate goal, so let me be very clear on that. However, there are some other puzzle pieces that you should get into place before you start aggressively paying down that mortgage. Let's talk about that.

Basic Payments and Avoiding Extra Payments Until All Debt is Cleared

You've got your mortgage over here, right? And I'm going to say, look, make the basic payments, the principal and interest. Do not even consider paying extra on that mortgage until, number one, you have no debt. Credit card debts are between 19% and 30% right now, buy now pay later, student loans, car loans. If that stuff is not paid off, you should not even be thinking about paying down this mortgage. The interest rates on all of that are more, the debt potential on all of that is more. So number one, all debt has to be paid off except for the mortgage.

Step 2: Establishing a Solid Savings

Number two, what does your savings look like? A lot of times, the average American doesn't have much savings right now. It's that simple, and a large part of it's because of stagnant wages and inflation. But if you have extra money, make sure you're building up that nest egg. And what I would say is, have at least six months in a savings account for emergencies. So what do I mean by six months? If you do a budget and you see that with your mortgage payment, your health care, everything that you have, you know, gas, food, electricity, water, your cost is about $5,000 a month, then I would say that you need to have $30,000 in a savings account that you do not touch unless there's an emergency before you even think about this.

Emergency Fund Importance and Refinancing Pitfalls

Okay, so number one, payoff debt. Number two, six months at a minimum. And I'll hear like, "Well, I don't want that money just sitting there." I've seen so many people need to refinance and take equity out of their house because they got aggressive paying off their mortgage but they weren't having any savings. And what happens is, someone could get sick, a car could break down, a house could need a major repair. And the problem with refinancing is all that hard work that you did to pay down the mortgage, you're just tagging it right back up. And look, if you're in a really dire position, you may not be able to touch the house's equity. I can't stress that enough, like life changes. I had a client once, he was self-employed, incredibly successful, so we did a 15-year mortgage. His debt-to-income was really low, his assets were great, really, really strong buyer. He came back a couple of years later and he said, "Jen, I need to get into a 30-year, I can't make the payment." And I'm like, "What's going on?" His wife had gotten cancer, she got very sick. They used all of their assets trying to fight cancer. You know, he wasn't at work, his business suffered. We couldn't refinance him because we didn't have the income that we needed in order to get him, you know, more cash out but also into a 30-year loan. So be really mindful about emergencies happening.

Step 3: Retirement Savings is Crucial

The next thing is retirement. Are you saving for retirement? Do you have an IRA? Do you have a 401(k)? Do you have a game plan? If you haven't saved anything for retirement, I don't even care if you're 20. The minute you get a job, you should start saving for retirement. It's your only chance of ever retiring. So unless you also are contributing to your retirement and you have a game plan, do not get aggressive with this. Getting aggressive with your mortgage is the step to take after you have no debt, savings, you have a good amount of savings, and you have your retirement growing, building, and you're actively contributing to it.

Assessing Interest Rates and Career Stage

Now, what is another reason paying off the mortgage aggressively may not make sense for you? So let's say you have no debt, you've got savings, you're contributing to retirement. Well, it depends on what your rate is. For instance, I refinanced back in the day. Of course I did, I'm a mortgage lender. And my rate's 2.625 on a 30-year. Don't hate me, I know. Paying down that mortgage right now aggressively doesn't make sense if I can buy a CD, a certificate of deposit, that's paying me 5% or 5.5%. There are other opportunities for money that may make more sense based on your goals. Some people are comfortable with the stock market and they may make more doing that than paying down the mortgage. It also depends on where you are in your career. Like, I'm still pretty far off from retirement, so in my case, rather than getting aggressive with the mortgage, trying to make more money off of every extra dollar I have is a better goal for me. Now, when I get within 5 to 10 years of retirement, is this going to be the priority? Yes. But, you know, hopefully over the years I do well with my investing so that paying this down is easier when you have one of these stupid low-interest rates from that era. Seriously, you can make more money with your money right now than paying that down.

Investment Properties and Tax Considerations

The other reason you may not want to pay down a mortgage quickly is if it's an investment property. That's something I'll see a lot where someone's like, "Oh yeah, the rate's 3%, but I just want to pay it off, I've got it rented out." I would talk to your tax adviser because you're going to have to declare your rental income and interest is something that you can write off against that. So talk to your tax adviser about that to see if it makes sense. But once again, could you be doing more with your money than paying down that really low-interest rate? Now, if you're at a 9% or 10% interest rate, I get it. But at the same point, if you're renting that property, the rent should be paying that mortgage. It should be paying taxes and insurance so that ultimately the tenant pays the house off for you without having to do any additional acceleration on your part.

Conclusion: Balancing Financial Goals and Mortgage Payments

So look, those are some things to consider before you get aggressive with paying off your mortgage. The overall goal is to be as financially fit as possible. And a lot of times, we're kind of programmed to just go do this, but no one's talking about the other stuff like pay off the debt, get the savings, stack the retirement, then do this. Or, if you have all this, is doing this the best use of your money, or are there other ways to grow your money? So thank you for watching. Hey, feel free to drop what you're doing, what are your goals, what's your plan? You know, when are you going to get that mortgage paid off? Are you doing other stuff with your money? Drop it in the comments. Thanks.

Summary:

Introduction: The introduction highlights the common question posed by clients about whether to use extra funds to pay down their mortgage. The presenter stresses that before making extra mortgage payments, several other financial pieces should be in place.

Basic Payments and Debt Elimination: The first priority is eliminating all other debts, such as credit card debts (which currently have high-interest rates between 19% and 30%), student loans, car loans, and buy-now-pay-later schemes. These debts carry higher interest rates and potential financial burdens compared to a mortgage.

Building a Savings Cushion: The second priority is establishing a robust savings cushion. Many Americans have minimal savings due to stagnant wages and inflation. The recommendation is to have at least six months of expenses saved in an emergency fund. For example, if monthly costs are $5,000, then $30,000 should be set aside in savings. This emergency fund is essential to avoid refinancing the mortgage during financial crises, which can negate the progress made in paying down the mortgage.

Emergency Fund Importance and Refinancing Pitfalls: The discussion underscores the importance of an emergency fund to cover unexpected events like illness, car breakdowns, or major home repairs. Without sufficient savings, refinancing may be necessary, which can reverse the efforts of paying down the mortgage. A real-life example is provided where a successful self-employed client had to switch from a 15-year to a 30-year mortgage due to a family health crisis, highlighting the unpredictability of life and the need for a financial safety net.

Retirement Savings: The third priority is saving for retirement. The presenter urges viewers to start saving for retirement as soon as they get a job, emphasizing the importance of having an IRA, 401(k), or another retirement plan. Aggressively paying off the mortgage should only be considered after establishing substantial retirement contributions and having a solid financial plan for the future.

Assessing Interest Rates and Career Stage: Even with no debt, ample savings, and a retirement plan, the decision to pay down the mortgage aggressively depends on the interest rate. For instance, with a low mortgage rate of 2.625%, it might be more beneficial to invest extra money elsewhere, such as in a Certificate of Deposit (CD) offering 5% returns. The presenter notes that career stage and financial goals also play a role. Younger individuals or those far from retirement might benefit more from investing extra funds rather than paying down a low-interest mortgage.

Investment Properties and Tax Considerations: For investment properties, the presenter advises consulting a tax advisor. Mortgage interest on rental properties can be tax-deductible, making it potentially more advantageous to invest extra funds elsewhere. The goal is for rental income to cover the mortgage, taxes, and insurance, allowing the tenant to pay off the property without additional contributions from the owner.

Conclusion: Balancing Financial Goals and Mortgage Payments: The conclusion emphasizes the importance of being financially fit before aggressively paying off the mortgage. Prioritize paying off other debts, building a substantial savings cushion, and ensuring robust retirement savings. Consider whether paying down the mortgage is the best use of extra funds or if other investment opportunities might offer better returns. The presenter invites viewers to share their financial goals and plans in the comments, encouraging a community discussion on achieving financial fitness.