The old schoolers and big financial planners always promote to pre pay certain amount of mortgage principal every month to save on interest amount. These all look fantastic savings , below is one example.
350K loan @ 4.5% for 30 years
Every month additional payment of $500
Saves 10 years and 9 months
Dollar savings of $115,374
You will be delighted by saving 115K , but this would be the dumbest decision.
This does not increase your net worth , prepayment you are losing money interest tax savings , putting all the money in one nest, you cannot take out the money until you sell the home ( it has own risk of market fluctuations ).
Think on the other side or like true millennial or generation X.
There are better ways to double or 4 times your savings on this and increase your net worth.
Below is the smart minds move :
Every month you contribute , $500
In the same 19 years with 7% ( all season weather resistant safe portfolio ) total returns with compounding is $237,125
A difference of 121,751 K savings than prepaying mortgage. ( $237,125 – $115,374 ) , you almost doubled your savings
Little added risky total market fund / or market index last 30 years average is 12%
That would results in 433,329 in 19 years with compounding.
A difference of 317K more savings than pre-paying. You saved 4 times your mortgage prepayment
Think Smart , Think in a different direction !!