Mortgage payoff proof is in the pudding
One of the most frequent questions I get asked by friends is whether or not they should pay additional money each month on their mortgage in order to pay off their loan sooner.
I usually answer, “It depends.”
Try a simple mortgage calculator. It’s one of my favorite tools! I love to see just exactly how much a few extra bucks a month can slice off the bottom line. You’ll find you can save tens of thousands of dollars. Just an extra $100 a month applied to the principle on a 30-year $250,000 mortgage can save you more than $50,000.
That’s hard to argue against. But there are reasons you should think twice. If you have credit card debt at 12 percent to 18 percent a year, pay that off first.
Tax breaks matter
Also, consider the federal and state taxes you save when you include home mortgage interest in your itemized deductions. Pay off your mortgage and poof! they’re gone.
Still, you’re usually better off paying your mortgage. Also, if your employer will match your contributions to a retirement plan, you may find that putting extra money into company programs is your best bet. Like I said, it all depends.
Watch the penalties
If you have a recent loan, you’ll also want to make sure you won’t incur penalties by paying it off early. Fortunately, most prepayment penalties decline or disappear after a few years. The University of Northern Illinois gives a good description of amortization schedules that can show how often the penalties can add up. As they mention, a mortgage calculator can help in these situations.
One thing’s almost a sure bet — you’ll get more bang for your buck if you pay down your mortgage instead of putting the same amount of cash into a savings account. So, do the math with a mortgage calculator and make the decision that’s best for you and your family.
