Making Extra Payments Even If Not Forever Home? (investments, mortgage, mortgage)

[dollerprod]

I got some good insight in a recent thread about the different 'methods' of making extra payments. Now that has led me to have another question.

Would you make extra payments to be applied to principal if you were fairly confident that you would not reside in the home for more than about 10 years, i.e., you are just going to get the same money back when you sell.

Aside from the return on investment you would receive if the home increased in value. And also the the money saved on interest paid in that that time period... say you were paying an additional $200/ month I think that would save about $3,000 in interest or something like that. (Doesn't seem like much over that amount of time)

So besides for that.. what's the advantage of paying the down the principle if you are planning on selling the home?

Thanks.

[jghorton]

The advantage of making extra payments is to reduce the mortgage loan term. A side-benefit is that even if one sells the property before payoff, one recaptures that added amount from the proceeds. In that respect, it's like a savings account ... which for the past several years certainly haven't paid much interest anyway.

If one gets in the habit of making extra payments and thus, living on a lower net income ... they can effectively continue that practice on their subsequent property ... without further 'bullet-biting.' By doing so, one will still achieve their early mortgage pay-off objective. --- plus develop a long-term habit of living within one's means.

[linnemj]

I would think by making extra principal payments you are investing money at a rate equal to the interest rate. For example, if you have a 4.5% interest rate, weigh that versus what you would get in return in other investments.

You also have to consider using the money towards your retirement by starting or increasing your contributions to a 401K.

Your goal is to either lower your costs or increase your income when you are ready to retire.

Of course, this is the persective of a 59 year old who was able to retire at 57 with the house paid off.

I think it is great that you are so fiscally responsible. Good luck!!

[Jkgourmet]

The prior posts make excellent points. And if the OP sounded like a person who couldn't/didn't manage their money well, my thoughts might be very different.

There are a few key details here that I am thinking about:

If the interest rate is lower than what you can get if you SAFELY invest the money elsewhere, don't make the extra payments. (Our last home was paid off. This one has a mortgage. Why? The mortgage rate was at its near bottom when we closed. I can always turn around and pay it off if I want, but in the meantime, that money is invested and doing very well, thank you.)

Do you have an adequate emergency fund - 6 months of 100% living expenses - stashed as a cash equivalent someplace? If not, that's where the money should go first.

After that, I'd consider these before I'd pay extra payments on the mortgage:

*Are you maxing out your 401k to whatever you can to get any match? If not, that's the next place for your money. After you've captured the match, then consider stashing more money in a Roth IRA.

*If you have kids, are you contributing to a 529 Plan for ALL of them?

*Do you have a HSA? If yes, max it out.

One more thing to consider when you make extra payments. Once the bank has it, you can't easily or cheaply get it back. Sometimes, the better approach is to keep it yourself 'just in case.' You never know what life brings - death of a spouse, loss of a job, major illness that requires treatment that is not covered by insurance, etc. When I was younger, those didn't worry as much as a they do now - and I'm another one who retired with a paid off house at a young 52.