Extra Mortgage Payment

Making extra mortgage payments will cut down on the length of your mortgage and the amount of interest you pay over the life of the loan. The specifics depend on the size of your loan and your interest rate.

The higher the interest rate, the more you'll save by making extra payments. But before you rush to make the extra payments, think about how else you could use the money. For Example, Paying down high-interest credit-card debt, for example, should be one of your first priorities -- the interest rate is probably a lot higher than what you're paying on your mortgage. Also make sure you have enough money in an emergency fund so you can avoid getting into debt if you have unexpected expenses. And be sure to contribute at least enough money to your 401(k) to receive your employer's match because that's a 100% return that you won't beat anywhere else.

Advantages of making extra mortgage payments

The followings are positive sides related to make extra mortgage payments

• Pay off mortgage early. When it is paid off you can put all your resources into investment and savings.
• Save Interest The interest on your mortgage is likely to be higher than most saving accounts. Therefore, it is best to pay off mortgage debt at 6%, rather than put into a savings account at 4%.
• Guaranteed Saving Stock Market investment has been quite volatile in recent years. Investing in the stock market means you could end up with less than what you started. Making extra mortgage payments is guaranteed to save you money. Speculate on the stock market after you have reduced your huge mortgage loan.
• Reduce Capital Debt All the extra payments goes on reducing the capital debt, rather than just paying interest on the loan. For example, in the beginning upto 95% of your monthly mortgage payment goes on just paying interest, very little actually goes on reducing debt.

Disadvantages of  extra mortgage payments

• You have other sources of debt. If you have any other debt like secured or unsecured loans it is advisable to pay off these debts first. As long as the interest rate is higher than your mortgage, then this should be your first priority in debt reduction. For example, it makes no sense to make extra mortgage payments at 6% interest, when you have credit card debt at 17%
• It is too much of a sacrifice. Many young people buying a house, find that upto 50% of their income needs to go on paying their mortgage payments. This is because house prices have risen faster than incomes, making it increasingly difficult to buy a house. If you find yourself in this situation, don’t worry about making extra payments, otherwise you will be spending on nothing else other than your mortgage. Over time, it will become easier to make your mortgage payments (assuming you get an increase in real wages). Just remember, buying a house is better than the alternative of renting.
• Tax benefits of Saving into Pensions In the UK, at least, making payments into pensions gets a double benefit, because the government tops up your pension contribution with an effective tax rebate. This means that not only do you benefit from the investment of a pension, but also extra tax savings. Therefore, it would not be advisable to stop your pension, just so you can make extra mortgage payments. Mortgage payments should be in addition to a pension.