Skip to main content

Should I Pay Extra on My Mortgage?

If you mean do I pay extra toward my principle, then yes. While many financial advisors — and many “armchair” internet “experts” — will tell you not to do this, because you can get a better return in the market, that’s not always the best case. That you have to figure out yourself.

Here’s a couple of reasons to starting paying down your mortgage:

  1. You don’t have enough equity (the difference between what you owe, and the home’s value). If you don’t have at least 20%, pay it down.
  2. You’re getting closer to retirement, you’re debt free, and you’re saving at least 10 percent toward retirement. Use the extra funds to pay it down. If you hit retirement with a home free and clear, you’re going to be glad you did.
  3. Having no mortgage, especially if you’re already retired, gives you the option of using the equity in your home for retirement funds, such as a reverse mortgage. I wouldn’t recommend this for everyone, but it is an option. (Having a sufficient retirement account and income is the best plan.)

I built my retirement house the year I retired. This may seem weird to many, but during my get-out-of-debt phase, I had sold my house — and my rental property, which was not really generating much cash flow— and rented to lower my expenses. I choose to buy a home again to lock in my housing costs, and the added benefit of building just what I wanted. (I assumed that rents would continue to go up, while a mortgage is pretty predictable).

For the last three years, I have used option #1, because I only put 5% down on my VA loan (I could have put more down, buy why tied up all the extra money right off the bat?) However, now that I have reached 80% equity value, I just reduced my extra principle payment so that I’m paying at least as much principle as interest. I don’t need to do this, but thought I’d keep the principle moving downward faster than regular loan payments. And I can adjust the extra principle downward each year. The extra funds can now go back to savings/investments.

The adage that you can earn more in the market than the cost of your mortgage is not necessarily true for everyone. There are many variables: 1) predicted market returns for your portfolio, 2) the current interest rate environment and 3) your mortgage interest rate.

While I choose option #1, at least for the early years of the mortgage, this may not make sense for anyone else. You have to sit down and do the work.

Critical Financial Steps When Buying a Home

Refinancing your VA Loan

Labels:

Comments

Post a Comment

Thanks for the comment. Will get back to you as soon as convenient, if necessary.

Popular posts from this blog

California: A Model for the Rest of the Country, Part 2

Part 1 here . On Leaving the Golden State Guest Post by NicklethroweR . Posted on the Burning Platform. The fabled Ventura Highway is all that separates my artist loft from the beach where surfing first came to the United States. Both my balcony and front patio face the freeway at about eye level and I could easily smack a tennis ball right on to the ever busy 101. Access to the beach and boardwalk is very important to a Tourist Town such as mine and I can see one underpass from my balcony and another underpass from the patio. Further up the street are two pedestrian bridges. Both have been recently remodeled so that people can not use it to kill themselves by leaping down into traffic. The traffic, just like the spice, must flow and the elites that live here do not like to be inconvenienced as they dart about between Malibu and Santa Barbara. Another feature of living where I live would have to be the homeless, the insane and the drug addicts that wander this particular...
Post a Comment
Read more

Factfulness: Ignorance about global trends. The world is actually getting better.

This newsletter was powered by  Thinkr , a smart reading app for the busy-but-curious. For full access to hundreds of titles — including audio — go premium and download the app today. From the layman to the elite, there is widespread ignorance about global trends. Author and international health professor, Hans Rosling, calls Factfulness  “his very last battle in [his] lifelong mission to fight devastating global ignorance.” After years of trying to convince the world that all development indicators point to vast improvements on a global scale, Rosling digs deeper to explore why people systematically have a negative view of where humanity is heading. He identifies a number of deeply human tendencies that predispose us to believe the worst. For every instinct that he names, he offers some rules of thumb for replacing this overdramatic worldview with a “factful” one. In 2017, 20,000 people across fourteen countries were given a multiple-choice quiz to assess basic global literac...
Post a Comment
Read more

Habits of Highly Successful Traders, Part 1

(Part 2 is here .) Trading is different than investing. Simply put, trading is short-term, investing long-term.  The goal of investing is to gradually build wealth over an extended period of time through the buying and holding (and selling at a appropriate time) of a portfolio of stocks, ETFs, bonds, and other investment instruments. Trading involves more frequent transactions, such as the buying and selling of stocks, commodities,  currency pairs , or other instruments. The goal is to generate returns that outperform buy-and-hold investing. While investors may be content with  annual returns  of 10 percent to 15 percent, traders might seek a 10 percent return each month.  Trading is hard work. Don't let anyone fool you. But if you're interested in this, it can be rewarding. However, you must have discipline and be able to follow rules. Most traders blow up their accounts. But the good ones follow certain habits. These habits can work well for investors al...
Post a Comment
Read more