Prepaid Mortgage – are you smart or dumb ?

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 !!

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