Is Making An Extra Mortgage Payment Smart?

Let’s say a benevolent stranger handed you $2,000. (Hey, a person can dream—though if you qualify for our Mortgage Credit Certificate program, that so-called stranger would be Uncle Sam.) Would making an extra mortgage payment be the wisest way to put that money to work for you? The answer is a resounding ‘maybe’—because like fingerprints, every financial situation is unique.

 

This fun-to-think-about scenario does bring up an important financial discussion though. Namely, what should you do if you happen to have a little extra dough on hand and you’re not exactly debt-free? Let’s review some options.

 

Shaving Time & Interest Paid On Your Mortgage

First, let’s look at the numbers if you were to apply extra funds to your mortgage payment. The fine folks at interest.com already did the math, so we won’t reinvent the wheel. Based on a 30-year mortgage, a $200,000 loan and an interest rate of 4%, this is what paying additional money toward your principal can save in time and interest:

 

Additional Payment             Time Saved                          Interest Saved

$100/month                          4 years, 11 months              $26,854

$200/month                          8 years, 5 months                $44,929

$300/month                          11 years                                $58,009

 

Want to play around with your personal payoff scenarios? There’s a calculator for that. Just plug in the years remaining on your mortgage, original loan amount, additional monthly payment and annual interest rate, and voila!

 

We know the thought of ditching your mortgage early can be appealing. However, it’s not always in your best interest—literally and figuratively speaking. Tax implications and investment strategies need to be taken into account, as well as the following three options for putting your money to good use.

 

First Considerations

If you have the room to get ahead, one of the very first considerations many financial advisors recommend is paying off credit card balances and other high-interest accounts. Not only are you paying less to borrow money with your mortgage versus high-interest accounts; you are reducing your balance-to-limit ratio by paying down your credit card balances, which positively affects your FICO score. Getting ahead on your mortgage doesn’t have the same impact.

 

Another top consideration is contributing toward the emergency fund you’ve set aside. (You started that, right?) Look just about anywhere online and experts will tell you to expect the unexpected by saving enough to cover several months worth of bills. And you should, because you never know.

 

Thirdly, consider contributing to your retirement account before paying down your mortgage. Why? Let’s say you have a 401(k) with employer match. The long and short of it is that your employer will contribute to your plan. That’s free money. Not only does free money not happen every day, it adds up over time, and that’s a beautiful thing. Also, if you have an individual retirement account (IRA), contributing non-taxable funds (as long as you don’t withdraw early) is another way to save money over the long haul—and we’re all about that.

 

It’s Time For The Pros

We don’t pretend to be financial gurus, and we’re not tax specialists, so consider this merely a discussion—not advice. We’ll leave that to the pros.

 

However, one piece of sage advice we are qualified to give is to take advantage of our Mortgage Credit Certificate (MCC) program. Homebuyers who are eligible can get a tax credit of about $2,000 every year and tax savings are in place for the life of your loan. Just choose a HIP-qualified lender and real estate agent to help you get started.

Our Programs

Nevada down payment assistance programs - Home is Possible

Home Is Possible™ offers thousands in bonus money to help with a down payment or closing costs.

Mortgage Credit Certificate helps first-time homebuyers and qualified veterans save around $2,000 in taxes annually.

Down payment assistance Nevada - combining HIP and Mortgage Credit Certificate

HIP Plus™ combines the benefits of Home Is Possible and Mortgage Credit Certificate.

HIP 1500™ offers an additional $1,500 for closing costs on top of the thousands in bonus money—for a limited time. Conventional loans only.

Nevada veterans mortgage assistance - Home is Possible for Heroes

Home Is Possible For Heroes™ helps veterans be at home with a below-market interest rate.

Nevada down payment assistance for teachers - Home is Possible

Home Is Possible For Teachers™ gives K-12 teachers in Nevada $7,500 in bonus money for a down payment or closing costs plus a below-market interest rate—for a limited time.

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