Prepaying Your Mortgage The Pros And Cons

Prepaying Your Mortgage The Pros And Cons

Prepaying Your Mortgage – the​ Pros and Cons
If you​ have looked into wealth building strategies,​ you​ have undoubtedly stumbled upon the​ raging debate over prepaying one’s mortgage .​
Here is​ the​ objective scoop .​
Prepaying Your Mortgage – the​ Pros and Cons
When paying a​ mortgage,​ one is​ in​ the​ unique and unfortunate position of​ having to​ pay a​ lot of​ interest over a​ long period of​ time .​
Depending on​ the​ value of​ your home,​ you​ can easily expect to​ pay hundreds of​ thousands of​ dollars over the​ life of​ a​ 30 year loan .​
Advocates on​ one side of​ the​ isle suggest that paying even a​ few extra hundred dollars a​ month against your principal will save you​ tons of​ money over the​ life of​ the​ loan .​
Others feel this is​ lunacy as​ the​ money can be used for other purposes .​
As is​ often the​ case,​ both parties are partially right and partially wrong .​
If you​ purchase a​ home with a​ 30 year loan and live in​ the​ home for 30 years,​ you​ will pay a​ draconian amount in​ interest .​
In such a​ situation,​ paying a​ few hundred dollars more in​ principle each month will save you​ tens or​ hundreds of​ thousands of​ dollars in​ interest over the​ 30 years .​
The question,​ however,​ is​ whether this makes sense for you​ in​ the​ real world .​
The first issue to​ consider is​ how long you​ intend to​ live in​ the​ home .​
In our modern transitory society,​ most people don’t plop down for long periods .​
If you​ are going to​ sell your home in​ five or​ seven years,​ the​ extra payments on​ the​ balance of​ your mortgage are not going to​ make much of​ a​ difference .​
On the​ other hand,​ making such payments makes sense if​ you​ are definitely in​ it​ for the​ long haul .​
The second issue is​ the​ mortgage interest deduction .​
Many people fall in​ love with the​ deduction .​
Obviously,​ yours will fall if​ you​ start paying off your loan ahead of​ time .​
Typically,​ you​ will not see a​ big drop off for at​ least five years,​ but it​ is​ something to​ keep in​ mind .​
The third issue is​ alternative money usage .​
Specifically,​ would you​ be better off using the​ money in​ another way .​
Historically,​ the​ stock market has returned a​ little less than a​ 10 percent rate of​ gain .​
While each year brings different results,​ some believe you​ are better off to​ invest this money in​ the​ market since you​ will be earning more at​ 10 percent versus paying off a​ 7 percent loan .​
This argument tends to​ forget one small thing,​ to​ wit,​ capital gains tax you​ will have to​ pay on​ any stock market gains .​
There is​ no correct answer,​ so make sure to​ analyze your situation .​
All and all,​ the​ decision to​ prepay a​ mortgage is​ a​ personal one .​
Take a​ stark look at​ your life and determine if​ it​ makes sense in​ your situation.

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