September 19, 2021

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Mortgage News

Four reasons you shouldn’t make an extra mortgage payment

Fountain Mortgage’s Charity Ohlund knows a thing or two about mortgages.

From the Ohlund charity

I previously had the advantages of a “secret additional mortgage paymentBy simply paying half of your monthly payment every two weeks. The biggest advantages of this strategy are to pay less interest and shorten the loan term (repay the loan earlier).

Conversely, however, there may be some advantages in NOT making any additional payment. As….

  1. Pay off credit card debt
    If, like many Americans, you are struggling with credit card debt, it is more than likely that you do not have enough cash to pay off your mortgage on top of that. Your credit card rates will be significantly higher than the home loan interest rates. Therefore, it makes sense to tackle credit card debt first. Credit cards usually have the highest cost of borrowing, with an average floating rate of around 16%.
  2. Refinance at a lower interest rate
    It might sound strange to skip paying an extra principal and refinance your mortgage instead, but it could turn out to be more saving and still let you keep the extra cash you would pay to your principal for other alternatives. The idea is that you can potentially lower your current rate without resetting your term. Your breakeven point could also be earlier than you think. Talk to our Fountain Mortgage team to find out if this makes sense for your situation.
  3. Build a rainy day fund
    Save for an emergency. We recommend budgeting for 3 to 6 months’ worth of living expenses for savings in case you lose your job or incur unexpected expenses. Without these financial reserves, you could put your mortgage at risk, including the extra money you worked so hard for in making additional mortgage payments.
  4. Invest in the market
    You could make more money using additional principal payments to invest in the market. It depends on how long you plan to stay at home.
    Think about how long you want to stay in your house. If you don’t see the benefit of additional payments before you are ready to sell the home, it may be better to invest what you would have paid extra.
    When mortgage rates are low (as they are now) they are assumed to be at least a few percentage points lower than what a moderate risk investment portfolio is likely to deserve.

This weekly sponsored column is written by the staff of Fountain Mortgage. Located in Prairie Village, Fountain Mortgage is dedicated to educating and empowering clients to make the best financial decision possible for their situation. Contact Fountain today.

Mike Miles NMLS ID: 265927; Well Mortgage NMLS: 1138268