Do you pay extra down on your mortgage principal each month?

[Frugal]

I was wondering if there are people out there on this Forum that try to pay down their principal on their mortgage faster by putting any extra money towards it each month...

And if you do, do you think putting $5-15 dollars extra towards it each month would help much in the total interest repaid over the life of the loan? I have heard it said that even putting $5 extra towards your principal payment each month can help.

[JoshuaHeckathorn]

I pay extra every month. Anything helps...even $5 is worth it.

[EconoMutt]

In the long run, even a few dollars a month will make a difference.

[greenskeeper]

check for yourself

http://www.bankrate.com/calculators/...alculator.aspx

[disneysteve]

There are other threads on this topic. Here is a recent one:

Is anyone paying down their mortgage (extra principal)?

As I said there, we are prepaying now. We send upwards of $1,000/month to principle.

This should only be done after all other financial obligations are taken care of. You should be otherwise debt-free. You should have a fully-funded emergency fund. You should be investing at least 15% of your gross for retirement. Then you can think about prepaying the mortgage.

[humandraydel]

Originally Posted by disneysteve

This should only be done after all other financial obligations are taken care of. You should be otherwise debt-free. You should have a fully-funded emergency fund. You should be investing at least 15% of your gross for retirement. Then you can think about prepaying the mortgage.

And even then, you should be aware of the pros & cons of paying extra and make an educated decision. For example, I recently bought a house, and my interest rate is 4.25% so I don't see much of a reason to pay extra.

[GREENBACK]

Originally Posted by humandraydel

And even then, you should be aware of the pros & cons of paying extra and make an educated decision. For example, I recently bought a house, and my interest rate is 4.25% so I don't see much of a reason to pay extra.

This is precisely why I do not pay extra. I recently refied into a 4.3% 30 yr loan. I can certainly earn more than 4% in my retirement investments and I can retain a lot of liquidity with a very small mortgage payment. If a major, major emergency occurs it's good not to be tied up with a big mortgage payment or those extra payments made. Let the bank collect a little interest. You'll laugh at it in retirement with a monsterous nest egg. BTW, you'll probably be able to pay it off with the stroke of a pen.

My retirement investments earned around 12% last year. That beats the measley 4% paid to the bank any day. I'm just saying.

[NJDebbie]

Our goal is to pay as much as we can towards the principal of our mortgage even though we are at a 15 year mortgage/3.75%. We have a 9 months emergency fund, 403B, a Roth IRA and state funded pensions and it just makes sense for us to get rid of the debt asap.

[cschin4]

You'll laugh at it in retirement with a monsterous nest egg. BTW, you'll probably be able to pay it off with the stroke of a pen.


Yeah, unless the market crashes. Or other unforseen circumstances. My point. Pay off your additional principal as often and as frequently as you can. And, listen to those of us who HAVE paid off our mortgages. It is easy for someone who hasn't to tell you why you shouldn't but i am here to tell you that you should. Pay off your mortgage, own your mortgage and home. If you want to finance something, finance your car instead.

[MonkeyMama]

I think prep-paying the mortgage is pretty reasonable/smart, if you all your other ducks are in a row (emergency savings, retirement, etc.).

Our next goal is to pay off the mortgage, but mostly because there is a simplicity to that (over investing until we have enough to pay it off, etc.). We've even discussed just splitting my dh's income 50/50. Invest half, mortgage half, and see how we feel about that with time.

On one income we haven't prepaid a dime. When we both work, we hit it hard. I can see both sides of the coin - puts my opinion squarely in the middle. I suppose since bigger incomes come and go, it strengthens my resolve to be rid of the debt next time our income is high. If our income doesn't bump up, I won't sweat it. Inflation will make our mortgage easy to pay off well before retirement, even if we don't prepay anything again. I think it is more important that we put 25% down, don't plan to buy up, and never borrow against our house. I have seen many millionaires do the same, never prepay a dime, and write that check quite easily in their 50s. I think we will be able to in our 40s (our interest rate is lower, and we haven't bought up since age 25).

On one-income, if we prepaid the mortgage, we would behind on retirement. I don't see the point. I laugh when the response I get is that I should be debt free before retirement. Well, duh. I don't have to pre-pay to have my house paid off well before we retire.

[BuckyBadger]

Originally Posted by cschin4

Pay off your mortgage, own your mortgage and home. If you want to finance something, finance your car instead.

Really? You'd rather have car loan debt than mortgage debt?

We do not currently prepay our mortgage, although we will be coming into some money in June that will fund the things we are currently funding with our excess money (EF, paying off a HELOC) so we may reconsider it at that point. Although at under 4.5% for 15 years, which is what we recently refinanced to, we may decided to not prepay. We haven't decided yet.

I did have fun one day playing around with an amoritization (sp?) table and seeing how fast we could pay off the house if we really REALLY wanted to. It was kind of cool to see that if we poured absolutely everything (after maxing out retirement investments) into our mortgage we could pay that sucker down really fast. But that still isn't something we would probably do, since we have no desire to live that frugally just to prepay a low rate mortgage.

[Slug]

I pay 1 1/12 payment each month so 13 payments per year. It's a nominal attempt to pay down the mortgage and diversify my investments (this being a guaranteed return).

[cschin4]

Really? You'd rather have car loan debt than mortgage debt?

Yes. I have purchased cars in cash when i was still paying down my mortgage then realized how nonsensical that was. What sense does it make to not take the low interest car loan over a couple of years and pay a little bit in interest on an item that depreciates to basically nothing. When you can put that money on something that is worth something, save tens of thousands in REAL interest money, and own something of real value much sooner? The argument in my opinion is backward. You may not agree but I challenge you to really think about it from my point of view, run your amortization tables of the ACTUAL interest you will pay over 30 yr even on a relatively low interest loan and ask yourself if it makes more sense to outrightly own your home which is a valuable asset versus your car?
I paid cash for my last car and in retrospect, the next car i will finance and just keep that money in the bank or invested. I have already paid off my mortgage, but i would preferentially pay that off first. So, again, I know what the conventional wisdom is but try looking at it from another POV.

[cschin4]

t. But that still isn't something we would probably do, since we have no desire to live that frugally just to prepay a low rate mortgage.

The beauty of the ability to prepay is that it isn't an all or nothing thing. You don't have to pay it off all in one day or even a few years, but simply adding extra payments on a regular basis could save YEARS off of your loan. I don't understand the resistance of people who don't want to pay off their home. Is it because they believe it isn't possible or what?

[Joan.of.the.Arch]

Only after 18 years of ownership have we recently begun paying extra on the mortgage. Makes me feel bummed that we could not do it early in the mortgage when the advantage would have been magnified, especially at the 7.68%* rate we had then. In the next two months we will be putting the equivalent of an 17 extra months' payments down on the principal. That is not as large an amount as it might seem, as our monthly payment is exceptionally small.

*That 7.68% was actually an excellent rate for the time. That was also in the days before No-Call registries. I'd get phone calls pitching re-financing promising "great" rates in the realm of 8.5%. They'd ask what rate I currently had and when I told them....the solicitor would hang up on me! Effortless way to get rid of phone solicitors. Loved it.

[GREENBACK]

Originally Posted by cschin4

You'll laugh at it in retirement with a monsterous nest egg. BTW, you'll probably be able to pay it off with the stroke of a pen.


Yeah, unless the market crashes. Or other unforseen circumstances.

I could pay my mortgage in full at anytime regardless of what the market does because I've put my money somewhere besides the mortgage company's vault. The market could crash but so what, Will it never recover? . The '29 crash and the '08 crash were supposed to doom the world yet we recovered fine from both or at least those who didn't launch into full scale panic did.

Guess next time it will be different.

[humandraydel]

Originally Posted by cschin4

Yeah, unless the market crashes. Or other unforseen circumstances.

Unforeseen circumstances is actually a good example. Let's say worst happens - you lose your job for 2 years AND you have a significant medical expense. If you've paid every dime you could toward your mortgage, the bank will most likely thank you, but they will NOT be willing to lend you money (via HELOC) to get through the tough times. It's actually possible that you lose your house and all that hard-earned equity.

On the other hand, if you had just stashed all that extra money away, you would have enough liquidity to get you through the tough times.

IMHO, people REALLY underestimate the importance of liquidity.

[disneysteve]

Originally Posted by humandraydel

Unforeseen circumstances is actually a good example. Let's say worst happens - you lose your job for 2 years AND you have a significant medical expense. If you've paid every dime you could toward your mortgage, the bank will most likely thank you, but they will NOT be willing to lend you money (via HELOC) to get through the tough times. It's actually possible that you lose your house and all that hard-earned equity.

On the other hand, if you had just stashed all that extra money away, you would have enough liquidity to get you through the tough times.

IMHO, people REALLY underestimate the importance of liquidity.

This is not an all or nothing deal. I don't think anyone here is suggesting that you prepay your mortgage instead of saving but rather in addition to saving. Currently, we save and invest at least 25% of our gross annual income. A portion of that 25% goes to prepaying the mortgage. Some goes for retirement. Some goes for college savings. Some goes for general savings not earmarked for a particular purpose. I don't think anybody should be putting every spare dime toward the mortgage if they don't have adequate liquid savings already.

[humandraydel]

Originally Posted by disneysteve

This is not an all or nothing deal. I don't think anyone here is suggesting that you prepay your mortgage instead of saving but rather in addition to saving.

I know, that's why I used an extreme, albeit not impossible scenario - out of work for 2 years AND significant medical expense. This could EASILY wipe out the 6 month EF. I guess I just place more value on liquidity than a lot of people.

[disneysteve]

Originally Posted by humandraydel

I guess I just place more value on liquidity than a lot of people.

Not necessarily. You need to look at actual numbers.

Our mortgage balance is about $78,000.

We have assets in non-retirement accounts, meaning they are easily liquidated, that total over $250,000. Then we have all the money in retirement accounts that could be accessed (with a penalty) if something truly catastrophic were to happen. I think we have plenty of liquidity. We could pay off the mortgage tomorrow and still be left with plenty of money.

You give an extreme example of being out of work for 2 years. I don't see any way that could happen. If I was disabled, I have insurance for that. As long as I'm physically able to work, I'd never stay out that long. I might not get the ideal job or job of my dreams, but I'd certainly go back to work to keep the money flowing in.