Originally posted by RiNkY:
Not true really - because your monthly mortgage payment is like 95% interest and only 5% principle. With most mortgages anyway. So the sooner you pay down more principle - the more you save on interest.
Think of this way. Lets say I a 5% mortage,and a 20% return on my 401k and for arguments sake it's compounded yearly.
If I use $1000 towards my 401k, in one year, this $1000 is now $1200. While the $1000 I still own on my mortage is now $1050. So, that $50 is tax deductable, vs the $200 net from the 401k which isnt'. So, if I remove a 1/3rd,
401k nets me $133
Mortage saves me $50.
Logically I'd put it towards my 401k. And remember that 401k will keep on netting me money until way after the house is paid off.
That being said, If you have extra cash it's best to put it towards other loans first, since they have a higher APR. And as you mentioned, the interest is tax deductible on your mortgage.
It is rarely smarter to put pay off a mortgage faster if you have other debt. And if you don't have other debt, it's sometimes more logical to invest that.
Previous Topic
Index
