We constantly have customers ask us “should I pay extra against my mortgage?” While every person’s financial situation is different, as far as assets, interest rate, etc. my short answer is “Yes”.
Let me start by saying that I’m debt-averse, meaning I don’t like debt. This probably sounds funny coming from someone who has spent a lot of years selling mortgages, which is the largest debt most people will ever undertake.
Most people who ask this question, ask it from the standpoint of wanting to be out of mortgage debt or wanting the mortgage paid down as quickly as possible.
Let’s assume a person has a $250,000 30 year mortgage at an interest rate of 4%. If they pay $100 extra each month, they’ll cut 4 YEARS and 1 MONTH off the term of the loan and save over $27,900 in interest! If they pay $200 extra each month, they’ll cut 7 YEARS and 2 MONTHS off the term of the loan and save over $48,000 in interest! Even just $50 extra each month would cut 2 YEARS and 2 MONTHS off the term of the loan and save over $15,200 in interest!
Many financial planners would argue that since 4% is a nice low interest rate, that a consumer would be better to save that money and invest it, hoping to earn more than 4% while maximizing the mortgage interest tax deduction. This ultimately, ends up being a customer decision based on a lot of different factors.
If you have any questions about your loan, your rate or your situation, don’t hesitate to call and let us help you analyze it.