Paid $12K extra on mortgage today.

[fordman302]

I calc'd that we need to pay $1K a month extra to pay off our newly finance 30 year mortgage in 15 years, so I went to the bank today and paid $12K in principle.  Just need to do that 14 more (hopefully less) January's.

[rpr]

If are willing to commit to a 15 year payoff, then it is significantly better to refinance to a 15 year mortgage. The interest rate on 15 year mortgage is usually at least 0.5% lower than that on a 30 year one. The savings can be greater than $10k over 15 years.

[Guesl982374]

If are willing to commit to a 15 year payoff, then it is significantly better to refinance to a 15 year mortgage. The interest rate on 15 year mortgage is usually at least 0.5% lower than that on a 30 year one. The savings can be greater than $10k over 15 years.

Congrats Fordman!

The interest is better but if one potentially needs to flexibility to pay less (eg. the lower 30 year payment) because of a job loss or other financial priority then the 15 year isn't better.

But I agree that you could save some interest with a 15 yr loan.

[tryingtosave]

congrats. I too have a 30 year mortgage and pay extra in principle(every month in my case). I wanted the flexibility in case of job loss or any other emergencies so I went with 30 year instead of 15.

[fordman302]

Thanks, yeah, you guys are exactly right, with potential job uncertainly, we chose a 30 year for slightly less risk.  I think that's why I'm driven to pay extra to offset not getting the better 15 year interest rate.

[rpr]

Thanks, yeah, you guys are exactly right, with potential job uncertainly, we chose a 30 year for slightly less risk.  I think that's why I'm driven to pay extra to offset not getting the better 15 year interest rate.

If job uncertainty is a big factor, wouldn't it better to bulk up liquid savings rather than pay down the mortgage. In the event of a job loss, getting the money out of the house may not be easy. The benefits of no mortgage payment occurs only when the mortgage is paid off. If you lose your job in the next few years, wouldn't there be a liquidity issue?

[Slee_stack]

Unless the $12K allowed you to drop PMI off your note and/or your mortgage rate is 4.5% or higher, I fear you would have been better off investing that money elsewhere.

You can always pay off the mortgage at the end of 15 years with the annual $12k investments (and returns) made elsewhere.  And you would get to deduct that extra interest portion of the $12k every year from your income taxes (unless you don't itemize).

As the above poster mentioned...if you find yourself out of a job, pulling money out of the house may or may not be easy (or cheap).  Maybe establish a Line of Credit just in case?

Selling something like after tax mutual funds can be risky too (if they tank exactly when you need the cash), but its also pretty darn fast, cheap and easy to do.  (Keep in mind funds might also peak when you need cash too.)

Kudos on your ability to make a lump sum payment!  I highly encourage you to reconsider where your next one goes.

[fordman302]

Thanks for the replies/advice, I really do appreciate it.   I initially did consider putting the 'extra' payments into a taxable account and then transferring those funds to the mortgage as job certainty stabilized, I even shared that plan with my colleagues.   As I thought more about it, I didnt really think it would be likely for me to pull money out of an investment to contribute to a mortgage, so I compromised and I am doing both.  I put 5K in taxable (for ER, not mortgage payoff) and 12K on the mortgage.  I'm happy with 12K extra a year on the mortgage, and will contribute more to taxable as savings allows.  As of now, I'm targeting $5K a quarter.  As far as liquidity, we have enough to cover roughly a years worth of mortgage.  We did have a large line of credit, but we had to close that with the re-fi, I should look into opening another.

[kpd905]

Are you already maxing out all tax advantaged investing space?

[fordman302]

Almost, Roth 401K and HSA is maxed, have sizable 529's for the kids. We maxed out Roth IRA's until we reached the income limit, but we do not do the backdoor Roth.

[ragu455]

Yes better to invest the $12k and pay off after 15 years

[MoonLiteNite]

I normally put down an extra 1-2k a month, on top of base pay into my house.
A few months ago i did 8k at once, and form time to time i do 3k.

And the loaner wants cash, always fun trips to the bank....

[RobFIRE]

With average investment returns, yes, it would be better to invest the extra money rather than use it to pay off the mortgage early. However, paying off the mortgage is a guaranteed return, investments are not, so I can fully understand people preferring to do that with some/all available spare cash once the tax-efficient options have been used up.

In terms of having extra savings to act as future security, presumably if you overpay on your mortgage the bank would be willing to lend you that money again should you need it.