Finance

January money moves and you pay off the mortgage

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Welcome to NerdWallet’s Smart Money podcast, where we answer your real-world money questions.

This week’s episode begins with a list of money tasks to be completed in the new year.

Then we move on to this week’s money issue from Benjamin, who left us this voicemail:

“Hello, Sean. This is Benjamin from Portland, Oregon. I’m calling because I’m trying to figure out what to do with my money. I have a mortgage on a house of $550,000. I have $236,000 left on a 20 year mortgage. I pay $2,000 a month and share it with my partner.

We keep getting calls for mortgage insurance and I’m trying to figure out where to put my extra income. I already have a Roth IRA. She does not know. Our finances are not merged. Every year I make the most of it. I have about $20,000 in the bank, already some stocks.

I’m really trying to find the best bang for my buck. Should I pay off my mortgage early? Should I invest in life insurance or mortgage insurance? Should I invest in the market? Should we take more vacations?”

Watch this episode on any of these platforms:

Our take on money tasks in the new year

January is as good a month as any to take stock of your finances and start making changes, if needed. For those who want to overhaul their budgets, conduct a spending audit and look for expenses that can be reduced or eliminated. You may also want to look at your retirement accounts and increase your contributions. Even a 1% increase will make a difference over time, as NerdWallet’s retirement calculator shows.

Checking your credit report is another money-making task that can really pay off. Access your report for free at iearcreditreport.com, then look for errors and unknown accounts — these could be signs of fraud. Identifying fraud sooner rather than later gives bad actors less time to file charges under your name and potentially damage your credit scores.

Other money issues include setting savings goals, reviewing your credit card portfolio, and planning vacations. You will earn it after carefully managing your money throughout the year.

Our take on prepaying your home

For many of us, our mortgage is our biggest debt, so it’s understandable that you want to pay off your home before the loan term is up. That way, you’ll free up money in your budget to spend elsewhere, and you’ll save money by paying less interest. However, before you start an aggressive campaign to get your mortgage off the books, be aware of the potential downsides. When your mortgage is paid off, you lose the mortgage interest deduction if you itemize rather than take the standard deduction. And the extra money you put toward paying off your mortgage might be better spent in other ways, especially if your interest rate is low. Keep in mind that the average rate of return in the stock market is about 10%, and saving more for retirement and emergencies is a higher priority than paying off your mortgage.

Our advice

  1. Think about your priorities: There may not be any “right” thing to do with your money. Focus on what is important to you and it will give you the life you want.
  2. Consider returns: If you have a low mortgage rate, you may get a better return on your money by investing than paying off your mortgage early.
  3. Compare insurance products: Life insurance can be helpful if your death would hurt someone financially. On the other hand, mortgage insurance can be a good idea if you don’t qualify for life insurance.

Have a question about money? Send us a message or call us at 901-730-6373. Or you can email us at podcast@nerdwallet.com. To hear previous episodes, go to podcast homepage.

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