Suppose your mortgage loan payment is low enough, and you’re rich enough, that you have some extra cash on hand, every month?
Should you make extra payments on your loan? Or, should you invest that money, somewhere else?
Some people think you should pay off your mortgage loan as quickly as possible, the idea being, build up your equity as quickly as possible, since the longer you have to pay your loan, the more interest you’re going to be paying.
Others think that isn’t the best idea. Why pay off your mortgage loan, at 6%, when you have credit card debt at 18.99%? Pay off debts, then start on your loan.
Others say, well, if I invest the extra money in the stock market; if I beat 6% returns, I’ve made some money (disregarding the tax implications).
… [P]aying off your mortgage while you’re still in the work force as a key to having a financially secure retirement: Should you get into a financial bind, you could either sell your home and downsize to a less-expensive one, or (if you qualify) take out a reverse mortgage that lets you tap your home’s equity.
… Generally speaking, if you’re planning on selling your home within five years, don’t bother prepaying — you won’t save enough in interest costs to make it worthwhile.
… If you’re saddled with a lot of high-interest credit card debt and are prepaying your mortgage, you’re paying off the wrong lender: Use all of your disposable cash to pay off the credit cards, then go shopping for a card with a better rate.
… If you’ve been slacking on saving for retirement — or haven’t started saving at all — forget about prepayments. Figure out how much you’ll need to save for retirement here and then use your spare cash to get there by saving through a tax-advantaged retirement account, such as a 401(k) or Roth IRA.
… Finally, if you’re already in retirement and still paying off your mortgage — with no end in sight — don’t even think about prepaying.
Complete story: Your Mortgage: Pay Now, Or Hold Off to Invest? – By Terri Cullen, The Wall Street Journal Online
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