Mortgage should i prepay

For the more confident investor, a better place to put your money could be in mutual funds, stocks, or a market-index ETF. Sure, the stock price can go down, but if the stock goes up and you get that yield or close to it , it could be a winning move for your money. But beware that when you choose to invest in one of these financial instruments, the risk goes up.

As a rule of thumb, the more you stand to gain, the more you could lose. However, there is a ton of risk in the stock market. As we saw during the financial crisis a decade ago, plenty of seemingly too-big-to-fail companies went down, such as Bear Stearns, Countrywide, Lehman Brothers, Merrill Lynch, Wachovia, Washington Mutual, and so on. Could it happen again?

Sure it could. Does your employer provide a k match? Is your money better off in another type of retirement account? Do you have other high-APR debt? How much do you need to set aside for a rainy day? I will say that mortgages have a lot of desirable qualities that make them the best debt to carry, namely the ultra-low interest rate. But I know people who absolutely hate debt and want to get rid of it as soon as possible, regardless of what the math tells them.

But know that few loans come with extremely low fixed interest rates that can be tax deductible and amortized over such a long period of time. If we assume inflation picks up in coming years, your existing mortgage becomes even more attractive to hang onto, as opposed to paying down, seeing that the debt will be paid back in cheaper dollars from the future. If rates happen to go down, you have the option to refinance to a lower rate , which also provides flexibility. And if you invest money early on instead of paying down your mortgage, your gains can be exponentially better.

Some folks like the idea of being debt-free, for better or worse, financially. Not everyone likes to invest in complicated securities or even seemingly benign blue chip stocks, so their goal might be to eliminate the debt overhang as quickly as possible.

It could also backfire. In that case, you may have to use your credit card to cover your bills or try to take out an additional loan. On the flip side, you could go for another year term to lower your monthly payments. However, loans with shorter terms tend to have lower interest rates, allowing you to both save on interest and reach full ownership much sooner. If your lender agrees to let you roll those costs into your loan, you could end up paying more money.

Whether you should pay off your mortgage early ultimately depends on how much money you have to spare, what your alternatives are and other factors that are unique to you.

Although often known for their expertise in investing and financial planning, many financial advisors are knowledgeable about mortgages and home purchases. Do you want to be completely debt-free, or would you prefer your money working harder for you in other ways? Prepaying your mortgage can be a good idea in many situations. It can be a big step toward becoming debt-free and greatly reduce your monthly expenses.

For starters, tying up your cash in your home means you have less liquidity and wiggle room in your budget. These financial goals could offer a higher return on your investment.

Another consideration is the opportunity cost of not having that extra money invested elsewhere. Over the past four decades, the stock market has returned an average of 13 percent a year.

When deciding whether to pay off your mortgage, look at your entire financial picture. Here are some important questions to consider:. Assessing your financial goals, income and budget can help you decide whether it makes more sense to address other pressing financial concerns before paying ahead on your mortgage. How We Make Money. Zach Wichter. Written by. Zach Wichter is a mortgage reporter at Bankrate. Edited By Suzanne De Vita.

Edited by. Suzanne De Vita. Suzanne De Vita is the mortgage editor for Bankrate, focusing on mortgage and real estate topics for homebuyers, homeowners, investors and renters. Share this page. Bankrate Logo Why you can trust Bankrate. Bankrate Logo Editorial Integrity. Key Principles We value your trust. Bankrate Logo Insurance Disclosure.

There are several ways to prepay a mortgage : Make an extra mortgage payment every year Add extra dollars to every payment Apply a lump sum after an inheritance or other windfall Recast your mortgage Some combination of the above How much can I save by prepaying my mortgage? Read more From Zach. You may also like Unpaid federal workers can sidestep rules to apply for cash-out mortgage refinance.