Should we pay off our mortgage sooner... or just keep making payments.?

Question

We have a 5.8% loan.. .. monthly payment is about $1,800, and we have 9 years left of payments with a principal of about $125,000 remaining. We could increase our payments... but want to understand the logic of it. Thanks!!

Answer 1

I would suggest looking at doing a My Bank type idea or loan where if you keep a decent amount of money in your checking account your average daily balance pays down your principle and you have access to your equity at all times through your checking account.  This way you can pay down your house and at the same time have your equity available for investing or just to have available.

Answer 2

You should NOT pay off your mortgage sooner (unless you simply get a lot of satisfaction from doing that). Financially you are much better off borrowing as much (tax-deductible) mortgage money as you can and investing the money in a tax-deferred account -- e.g. Roth IRA, insurance contract.

Answer 3

For years, banks and financial advisors have been recommending that you pay extra cash into your mortgage, to cut down the huge interest amount and reduce the period over which you pay back the loan.

For example, if you borrow $200,000 over 30 years at a rate of 5%, your monthly repayments would be around $1,074. Over 30 years, you would actually pay 1074 x 360 (months), which is $386,640.  That's $186,640 in interest!

If you could find an extra $246 a month, and pay $1,320 a month into the mortgage, you'd cut 10 years off the repayment period the loan would be fully paid in only 20 years. Moreover, your total payments would be $316,664, saving $69,756!

The flaw in this technique is that it ignores the time value of money.

Everyone knows that money is worth less now than it was when they were younger. If you take that $1,074 mortgage repayment, for instance, in 30 years time, when the last payment is due, it would only be worth $437 in today's money.

A dollar now is always better than a dollar in a year's time, or in 10 year's time.

Read the full article here:

http://basicmortgageadvice.com/mortgage-...

There is also the option of opening a mortgage checking account and give yourself the ability to use a rarely used technique that allows you to continue making regular payments and reduce the interest on your daily loan balance which will payoff your mortgage in half the time. For years this method has been used by homeowners for mortgage acceleration. I know many people who have had success setting this up and using this software to calculate the numbers. You can watch how it all works here at: http://www.MortgageMagicSoftware.com

Answer 4

I think the experts recommend paying off all your credit card debt first because it has the highest interest. Then maybe work on paying off your car loan if you have one. Then you could start paying more on your house. Thats what I did. I also contribute to my 401k.

Answer 5

It depends on your tax bracket.

As you get down nearer to paying it off, the tax benefit of having the mortgage will reduce (less $ on your 1099-INT to deduct) making your tax burden higher each year.

If you pay the mortgage off early, your tax burden will rise sooner... BUT... you won't have the payment either.

Not knowing what your tax rate is, it is difficult to tell which is better for you... eliminating the monthly mortgage payment (cash in your pocket) or increasing your tax obligation.

If I had to guess, I'd say your increase in tax obligation would be LESS than ($1800 X 12 ) $21600. SO

Payoff the mortgage early!

Best of luck!

Answer 6

Honestly, I'm split on this, there are great ideas here, but this comes down what your dreams and goals are.  Here are the two main factors to take into consideration.  One, the interest write off you get every year.  Once this is paid off, your check from uncle sam will be less.  The flip side is that your home is paid.  You can stay in the home, sell it to upgrade and use the proceeds for a great downpayment.  You can refi later if you have children and want to help them go to college or refi down the road, get another home, boat, vacation, whatever you want.  Too many people get caught up with the now and immediate factor, we've forgotten how to use our homes to finance our retirement.  This isn't a question for anyone here to answer, it's yours to answer based on your future goals and dreams.  Take it all into consideration, and make the best decision not only for now, but your retirement as well, good luck

Answer 7

with every payment the intrest is payed with that payment. so like you payed 1500 one month the intrest is on that and then you pay another 1500 the next month so you pay interest on 3000. so the longer you take to finish the more money you lose in interest..so the faster you pay off your mortgage the better!!

you could use the link.its a mortgage calculater and it may help