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Everything I read says you should use time to your advantage and start saving as soon as possible. However, I have a home mortage with an interest rate higher that what one could expect to make out of an investment.

I know that mathematically, it make more sense to pay off my mortage. However is there any reason I should not make as large of payments as I can to my mortage and instead save a portion?

I have 6 months of expenses saved, so this type of emergency saving shouldn't be considered.

Thanks!

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It will depend on the interest rates you can get on the savings vs the mortgage. If the savings rate is higher, then you would be better paying your money there than in the mortgage. Alternatively if the mortgage rate is higher than you can get with a savings account (or alternative such as peer-to-peer savings) then you should look to pay off the mortgage.

You should also consider if you will be charged any early repayment fees for paying off your mortgage early. It could be that using a combination of paying off the mortgage up to the early repayment limit, with any surplus going to savings accounts would be a better option.

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  • Luckily I have no early payment fees. So basically, it's all about the interest rate? Beyond just an emergency fund, it should all be going towards mortage in the case it's interest rate is higher? – Sandy Dec 29 '14 at 13:51
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    If I was in your situation, I would also be putting some money away towards retirement in addition to paying off the mortgage. Also gradually increasing the emergency fund to cover things like inflation and make it a larger safety net. – Shaun McDonald Dec 29 '14 at 14:07
  • @Sandy - also you should consider into the equation if you get any tax deductions on the mortgage interest - this may depend on the country you are in and whether the mortgage is for your house or an investment property. – Victor Dec 29 '14 at 21:40

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