Life stage. The decision to pay down a mortgage will vary depending on your life stage, risk tolerance and time horizon. If you're nearing retirement you may have a more conservative asset allocation, and investing the excess cash in the market may mean taking on unnecessary risk. Being debt-free may also become more important later in life.
Time horizon. If you are planning to stay in your home for the long term, it makes more sense to consider overpaying your mortgage than if you don't anticipate ever paying off the note.
As you weigh the options, set realistic expectations and ensure the proper plan is in place to achieve your objectives. Discuss the decision with your financial adviser and tax professional before committing to a strategy. As with all financial goals, it pays to be flexible. If you're still unsure which direction is best or whether you have adequate reserves, think about opening a dedicated savings account for your excess cash flows and revisit the decision in three to six months. By separating the funds, you will be less likely to spend it on daily expenses while you consider the options.
Kristin McFarland is a blogger for The Smarter Investor and director of strategic partnerships at Darrow Wealth Management, an SEC registered investment adviser in Massachusetts. The material contained in her articles is for general information only and should not be construed as the rendering of personalized investment, legal, accounting or tax advice. You can connect with her on LinkedIn and follow her on Twitter.
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