Pay Down Your Mortgage With 'Found' Money
It seems that a common question for homeowners is whether or not it's a good idea to send extra principal along with (or in addition to) their mortgage payments. The answer to this question varies from case to case, but here's what I do...
We have a very reasonable mortgage rate (5.75% for a 30 year mortgage -- we could have done a bit better, but we pulled the refi trigger just a touch too soon), so it hardly makes sense to aggressively pay it down. In the long run, we'll most likely come out ahead by doing things like sending extra money to our retirement accounts rather than to our mortgage company. Yet, I still feel some strange compulsion to pay off that darn mortgage as soon as possible. So...
I've taken to making additional principal payments with 'found' money -- things such as credit card rewards, rebates for stuff that I would have bought anyway, etc. The way I look at it is that money like this is just gravy, so I won't miss it anyway. Yes, I could probably do better in the long run by investing it, but this approach allows me to scratch the prepayment itch without affecting our day-to-day finances.
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"Pay Down Your Mortgage With 'Found' Money" was first published at fivecentnickel.com
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5 3/4% is great ... you beat me by 1/8% :)
Another way to look at paying down a mortgage is a guaranteed return of your mortgage rate (minus any tax savings forfeited by the reduced mortgage interest itemized deduction). A guaranteed return of 5%+ isn't bad, especially with savings rates of return at 3% or less and stocks flat as they are.
I agree with the guaranteed rate of return - mine is 6.875% (I couldn't refinance because the mortgage balance was so low) Plus, I have never been able to take the mortgage interest deduction on my taxes because the amount of interest was so low. This year, I am on track to pay off my 15 year mortgage in 8 years. I will be so happy to see that debt gone!
I'm a big fan of paying off the mortgage early. Yes you can make more in the markets over the long run but it sure feels good to see the balance due shrink. Plus once the mortgage is paid in full think of all the things you can do with your monthly payment amount. Also, to add to the rate list 5.125% 30 year fixed. Timed it perfectly.
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