Paying your mortgage off early may not be a good idea

Homeowners often hear that they should throw extra money toward their mortgages whenever possible. The extra money goes toward the principle taking months, and sometimes even years, off of a loan if you make just one payment a year. For some people, that's a smart financial decision. For most of us, though, it simply doesn't make sense. Here are some of the situations where it doesn't make sense to fork over the extra cash.

Is it your forever home?

Unless you plan on staying in the home until you die (or at least until the mortage is 100 percent paid off), paying extra money toward your mortgage doesn't offer any benefits. If you know you're going to move in the next five years or so, use that money for other things. Make improvements to the home to increase its resale value, put the money in savings or take a vacation.

Do you have credit card debt?

If you have credit card debt, that should be paid off first before any extra money is paid on the house. Your mortgage's interest rate is probably in the 3.25-5% range. It may be a little more. Compare that to the 19.99-29.99% interest rate on most credit cards. When you look at it this way, you can clearly see what you need to pay more toward.

Are your savings and retirement accounts fully funded?

Again, the low interest rate of mortgages plays an important factor in this. Instead of paying extra money to a mortgage with low interest that you probably won't even keep, you should instead sock away that money into long-term savings to let it earn money for you. This is especially important if your emergency fund isn't yet funded with 3-6 months worth of living expenses.

If you have all of the above issues covered and you plan to keep your home, by all means, make extra payments. If not, think about putting it where it can be better spent.

Photo courtesy OlgerFallasPainting via Flickr.