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

[GREENBACK]

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]

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]

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]

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]

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.

[Goldy]

This is a question I have struggled with for quite some time and finally decided to pay biweekly and pay an additional 50 bucks per payment. I have only paid one mortgage payment so far so it will be interesting to see if this needs to be changed in the future.

[humandraydel]

Not necessarily. You need to look at actual numbers.

I agree 100%...but I'm not talking about you. I'm talking about people who say "I've built up my EF to 6 months...should I redirect my monthly savings to my mortgage?" IMHO, that can be a mistake.

[disneysteve]

I agree 100%...but I'm not talking about you. I'm talking about people who say "I've built up my EF to 6 months...should I redirect my monthly savings to my mortgage?" IMHO, that can be a mistake.

Agreed. As I've said, prepaying the mortgage should happen AFTER all of the other financial ducks are in a row. If you don't have a 6-month EF AND are not putting 15% into retirement AND are not saving for your kids' education AND are not setting aside money for short term needs, you probably shouldn't be prepaying the mortgage.

[LivingAlmostLarge]

I'm in that boat. We are saving for retirement, trying to save for college and getting short term savings going. It's slow building. Will we ever prepay our mortgage? Maybe in 5 years. I round up to the next hundred for now because i'm lazy. But it's hard honestly to keep saving for everything and prepay the mortgage when you have things like home repairs, car replacement, college, etc.

[jerrycates]

I believe it is good to pay a little over the principal especially if you can do it on a monthly basis. It makes you feel the principal move a little bit faster. I try my best to do that. My thoughts.

[twest]

I have never posted but have been reading posts on this site for a year now. Love everyone's advice and input. I just wanted to share my experience with this. We bought a house with a loan for 60,000 and paid the mortgage off in 4 years. I am a firm believer in extra payments. Our payment was 500 and we just paid it like it was a $1000 payment. My DH and I only made about 65000 at the time so I just wanted to let anyone who is thinking of doing this know it is worth it IMO. I also felt we didn't sacrifice very much in order to do this. We are pretty frugal, but if we truly want something we will go get it. Now we have sold that house and upgraded to a home worth 160,000 and our current loan for the house is only 85,000 now. I am doing the same as before to pay it off as quickly as possible. We never did really receive any tax break on our interest so that was never a consideration for me. I have just always been that way about debt....never wanting it around any longer than it has to be.

Thank you all for your posts and advice. Love reading this site each day.

[twest]

I have never posted but have been reading posts on this site for a year now. Love everyone's advice and input. I just wanted to share my experience with this. We bought a house with a loan for 60,000 and paid the mortgage off in 4 years. I am a firm believer in extra payments. Our payment was 500 and we just paid it like it was a $1000 payment. My DH and I only made about 65000 at the time so I just wanted to let anyone who is thinking of doing this know it is worth it IMO. I also felt we didn't sacrifice very much in order to do this. We are pretty frugal, but if we truly want something we will go get it. Now we have sold that house and upgraded to a home worth 160,000 and our current loan for the house is only 85,000 now. I am doing the same as before to pay it off as quickly as possible. We never did really receive any tax break on our interest so that was never a consideration for me. I have just always been that way about debt....never wanting it around any longer than it has to be.

Thank you all for your posts and advice. Love reading this site each day.

[couchrobt]

I think it is ok that you pay more than what you have to. It gives us a feeling of security somehow that we will not lose what we have. My thoughts.

[TheMom]

We are paying ahead and should pay it off in about 6 more years instead of 10 more years. We're planning on using the money that was going towards the mortgage to finance college and by paying it off 4 years early, we'll have it timed better.

[Like2Plan]

We did pay extra on our mortgage and it was paid off a few years ago. It is a good feeling especially as I am fixing to retire.
In addition to paying extra all along, in the last year of our mortgage we transferred the remaining amount owed over to a zero % CC offer we received (back when they didn't have a transaction fee ).