Payoff Mortgage Early Strategy
Paying Extra On Your Mortgage Principal Payments?
Do This Instead
If you are paying extra on your mortgage principal, most likely you are focused on being debt-free.
That is a great goal.
If you are doing this, then there are some personal finance 101 checklist items to consider:
- Do you have other debts? I.e. credit card, school loans, auto loans… Those should be paid off first.
- Do you have an emergency fund?
- Do you have 6-12 months of savings?
If your answers are no, yes, yes then congratulations on those accomplishments!
Now let’s say you are making those extra principal payments. You see your debt going down every month or when you are making those payments; but what happens if you need a major house repair?
Does the bank allow you to withdraw from those extra payments you so generously have been making?
No!
They will be quick to offer you a HELOC (Home Equity Line of Credit), a personal loan, or maybe even a new credit card.
Emergency funds are not generally earmarked for major house repairs, and your 6–12-month savings are generally for replacing income if you lose your job.
At First Harbor Financial Services, we recommend that our clients to having a separate account specifically for paying off your house. Invest those extra principal payments in an investment grade vehicle that will pay interest and compound over time.
Not the stock market!
Then, if you have a major repair come up you have the capital to access.
When our client does this long enough, their mortgage amortization schedule will be decreasing, and the “House Account” will be increasing. They’ll be able to write that glorious Pay-off check to the bank when those two accounts intersect.
While doing this strategy the client is in control of the equity build-up, not the bank. Looking at the mortgage statement our client knows they owe less based on what they have in their “house account” and not having to go running to the bank or tap into other accounts if a major house repair comes up.
To learn more about this strategy or other financial planning strategies, reach out to the First Harbor Financial Services team.
Investments mentioned may not be suitable for all investors.
Investing involves risk and you may incur a profit or loss regardless of strategy selected.
Any opinions are those of First Harbor Financial Services and not necessarily those of Raymond James. This material is being provided for information purposes only and is not a complete description, nor is it a recommendation.
Raymond James Financial Services, Inc. does not provide advice on mortgages.
