Should You Make Extra Payments to Your Principal Balance?

I am often asked about the wisdom of making additional payments to the principle balance on a mortgage. While no one answer is right for everyone, here is some food for thought.

Paying off a mortgage early is an excellent idea.  Dave Ramsey and others have written about the financial and emotional benefits of being debt free.  The Bible is clear that the one in debt is a slave to those who hold the debt.  It would make sense then that the mortgage debt should be paid down as soon as possible.

So is this strategy right for everyone?  It depends.   My best advice to my clients is to have a balanced approach that aligns with their short term and long term financial goals.  Kids, college planning, retirement planning, and other life events should all be considered.  A carefully planned budget and financial plan will help.  The balanced approach will help make sure your mortgage payment is comfortable and your goals are reachable.  Once you have determined what payment schedule is right for you, in most cases you will come out ahead by sticking to it and investing your extra money in a market-matching index fund.   This year it made a lot of sense to put extra funds into the stock market as compared to paying down a low rate mortgage.

If you need help with your plan, a qualified financial planner will be able to make recommendations that will help you reach your goals.  They will be able to help you calculate how much you would save by paying off your loan early, as compared to your savings with how much your extra payments could earn if invested.  Please call me if you are interested in a recommendation to a great financial planner who can help you think through these choices, or if I might be of any other assistance to you at this time!

David Averell

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