I appreciate the insightful suggestions. At times I think I can become so consumed by this and am unable to determine the best course(s) of action. I might be gung ho one day to repay the mortgage and then turn a 180 and decide investing is the best long term solution. It's trying to reconcile the theoretical- and behavioral-finance voices in my head...
Can you change your monthly mortgage payment of $1500 to $750 fortnightly? Thats a quick and easy way to save a little bit more in interest and pay it down a bit faster.
There is a weekly and semi-monthly option; however, the money collected at that time is not immediately applied to the balance. The lender holds principal until sufficient to meet the required full monthly payment. These options only get you an extra payment over the course of the year.
As for the rental property idea, that's a life choice as well as a financial choice. Do you want to be a landlord now? What would you do if your sister no longer wants to rent the condo? What would you do if she damages it? Would you want to be a landlord when you have kids?
But, you guys are hoping to start a family in the next year or two and I'm an unmarried 24 year old. How much excess would you have monthly if your wife wasn't working? Does your wife plan to stay home with the kid(s)? Will she have paid maternity leave? Will you take any paternity leave? Will it be paid? How much does childcare cost in your area? That could eat into your $2k/month excess since I hear in some urban areas it can cost $700-1,400/month/kid, especially in the early years.
Since you are 4-5 years away from paying off the house and you want to have kids in 1-2 years, I would consider investing instead of paying down the mortgage. It's already at 3.25%. You can always pay off the mortgage later with your investments if you so choose and it would provide a bit of flexibility to have monetary assets versus more equity in your home.
@ icefr, I truly appreciate the additional questions to consider. It is easy to lose sight of potential changes in one's family or financial situation that may be around the corner. I think (for now) that the liquidity and flexibility from investing monthly trumps the desire to completely exterminate the mortgage debt in the shortest possible time frame.
I like your idea of using potential year-end bonus money to accelerate the repayment of the mortgage debt.
Speaking of a hybrid approach, I have read on other threads continuing to amortize the mortgage debt while building up a cash balance to direct towards the mortgage balance. As the mortgage is repaid and the cash balance builds, apply the cash to the mortgage when both are equal. Sure, there will be a cash drag by maintaining higher cash balances and some additional interest expense on said mortgage. But the trade off is the liquidity and flexibility one would have, especially with an uncertain future.
[bad grammar joke]
No dilemma here, as a 'dilemma' is a choice between two options...
[/bad grammar joke]
I guess we have different dictionaries. According to Merriam-Webster, one definition of a "dilemma" is:
an argument presenting two or more equally conclusive alternatives against an opponent http://www.merriam-webster.com/dictionary/dilemma