Should I Pre-Pay My Mortgage?

Ahhh, the American dream of owning a home.  If only you didn’t have to take our a mortgage to do so.  Owning a home may be the first item on your financial to-to list, but isn’t it strange that owning a home, and building equity for your future results in going into the most debt you could ever imagine?

Deciding between pre-paying your mortgage or investing the difference is not an easy decision.  Each option has advantages and disadvantages.

Should I Pre-Pay My Mortgage?

Strictly by the numbers pre-paying your mortgage does have financial benefits.  Let’s assume you have a 200K mortgage with a 4.75% interest rate.  By simply putting an extra $250/mo toward your mortgage payment you will save nearly 65K in interest over the course of the mortgage and pay it off 10 years early.

Sounds good..right?

The down-side is you could have potentially put the $250/mo to work in a relatively safe investment and matched or even exceeded the 65K savings.

It really comes down to personal preference and various lifestyle factors:

  • How comfortable are you with debt?
  • How close are you to retirement?
  • Are your kids in college and are you footing the bill?
  • Do you have a good mortgage interest rate?
  • Do you have other high-interest debt?

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