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Additional Mortgage Payments

Mortgage Library: Ask a Mortgage Related Question: Answers: Additional Mortgage Payments

Question:

I would like to know if it is financially beneficial for me to make additional mortgage payments to principal, even if I do not intend to stay in the house for the life of the loan, which is about 29 years.

S. K.
Brook Park
Ohio

Answer:

There are 2 very different thoughts on this topic.

The first would be to say yes it is beneficial because you will have more equity when you go to sell your home, and you are paying less interest because this is calculated on the daily balance, thus if the balance is lower your interest is lower.

I say it depends on a few things. The first is what is your current interest rate? The second is what rate of return could you get in an IRA, mutual fund? Third would be your tax situation.

Example: If you are at 5.5% and you can tax deduct your mortgage interest, the effective rate is probably under 5%. If at the same time you can get 6-10% return on an investment, it is then better to invest the extra payments into an investment account and make the 'spread' between 5% and 6-10%.

If you would like me to do an analysis of your exact situation you can email me or call me at 866-439-6638. My name is Dimitrios Gikas, I am a licensed loan officer/branch manager in Westlake, OH. I am a former financial advisor from PaineWebber, I have been a loan officer for 5 years. I believe my financial advising background helps me look at your mortgage as more than just another loan, I see it as most peoples biggest financial investment and treat it as such.


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