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.
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?