If you are to receive a tax refund this year, you must be thinking of the best possible way of using it. Each year, an average of 80% Americans receives a tax refund averaging around $3,000 per filer. We all have great ways of spending extra cash but everyone would need to take a full advantage of their refunds. If you are a homeowner, you must have considered using your tax refunds for your mortgage down payments. Any option you might consider using should all depend on your current financial situation and the best I can say is paying down your mortgage. More on that, building equity highly depends on how fast you can pay your mortgage balance.
The answer of whether you should or should not use your tax refunds to pay your mortgage payments may be different for different people and might depend on other factors. We’ll talk on some of those factors below:
- High-Interest Debt: The most important factor when trying to consider this is having your focus on high-interest debt obligations. If you have debt on your credit card or any other type of debt with a reasonable interest rate, it should be wise to start paying those off. Credit cards and other high-interest debts can be a financial burden in no time, you should consider handling them before trying to make an early mortgage payment. It is proven by most financial experts that mortgage debt is one of the “good debts” to have, it helps you build an investment while interest rates are relatively lower than credit cards.
- Emergency Saving Funds: Having a back pocket cash to cover unexpected expenses should be a great idea towards financial planning. If you had no money to handle your emergency situations, here’s the time to set that cash aside, fund rather than paying down your mortgage, you should consider setting up an emergency saving account. The size of your emergency account will depend on your situation. Open an emergency account with your tax refund or just deposit the money to an existing account.
- Retirement Account: If you finally get freed of credit card debts and you have saved at least three months worth your living expenses, you’re good to go. What’s left is planning your financial future. Whether you’re using an IRA or a 401(k), you should have a top priority of mixing out your retirement account. Having a retirement account with a substantial amount in it can be even more beneficial.
Having all these listed factors above, you can for yourself determine whether it is financially advisable for you to use your tax refunds to make early mortgage payments. You should always seek council from your tax accountant and financial advisor.
The Sherry Riano Team of mortgage experts are here to help, so reach out with any questions!