If you experience a boost in your personal fortunes thanks to a job raise or an inheritance, you may decide now is a good time to pay more on your mortgage so you can finish paying it off more quickly. While paying off your mortgage faster can be a good thing, making extra payments might actually cause you trouble.
If you have enough money to pay off your mortgage early, you should not have a problem. However, if you need future income to make the rest of your mortgage payments, you may still run the risk of foreclosure. Forbes explains the problems you may run into and how to avoid them.
While paying off your mortgage may not be a problem if you have a steady job, unexpected events can upend your financial situation. A sudden economic downturn may cost you your job. You may suffer a catastrophe that diverts your finances and impedes your ability to make mortgage payments. The fact that you have made extra payments in the past will not help you if your bank considers foreclosing on you.
Increasing chance of foreclosure
Paying extra to your bank could even increase the possibility of foreclosure if you suddenly stop making payments. Because you have paid off more of your mortgage, you have increased the amount of equity in your home. In the event you stop making payments, the bank is more likely to foreclose on the home and sell it because of the added equity in it.
Saving extra money
If you come into a great amount of money, instead of making extra mortgage payments, consider putting your money aside for the future. If you save enough, you may be able to pay off the rest of your mortgage with one check. You may also have money ready to service your mortgage in the event you hit financial hard times.