Ignore Solicitations

Soon after you move into your home your mailbox will be flooded with solicitations offering you mortgage life insurance and mortgage disability insurance. Most of the solicitations come from your mortgage lender, but other solicitations may come from insurance firms that picked up on the publicly available information revealing that you recently bought your home.

The fundamental problem with these insurance policies is that, given the amount of insurance protection offered, such policies are usually grossly overpriced and don't provide the right amount of benefits. The amount of life and disability insurance protection that you carry should not necessarily be determined by the size of your mortgage. If you need life insurance protection because you have dependents who rely on your income, it's generally wise to buy low-cost, high-quality term insurance. Likewise, if you are dependent on your income, make sure that you have proper long-term disability insurance coverage.

Ignore solicitations for faster payoff

Another type of solicitation that you may receive extols the virtues -- thousands of dollars in interest savings -- that you can reap if you pay your mortgage off faster. For a monthly fee, these services offer to turn your annual, 12-monthly-payment mortgage into 26 biweekly payments, each of which is half of your current monthly payment. Thus, you'll be making 13 months' worth of mortgage payments every year instead of 12. Doing so will usually shave about 8 years off the repayment schedule of a 30-year mortgage.

There are two problems with these services. First, you're paying the service money for paying off your mortgage faster -- something you can do without the service and its fees. Second, paying off your mortgage faster than necessary may not be in your best interest.

The question to ask yourself is what you would do with the extra money each month if you didn't pay off the mortgage faster. If you'd spend it on something frivolous that would provide only fleeting, superficial enjoyment, paying off your mortgage faster is probably a better use for the money. Likewise, if you're an older (or otherwise risk-averse) investor, you're unlikely to earn a high enough rate of return by investing your money to make it worth your while not to pay off your mortgage faster.

On the other hand, if you could (instead) sock more money away into a tax-deductible retirement account, paying off your mortgage faster may actually cost you money rather than save you money.