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Finance For Dummies

Finance For Dummies offers personal finance information on investing, retirement investing, finance, insurance, credit cards, loans and more. Personal finance education is our goal.

Monday, July 24, 2006

When to Prepay on Your Mortgage

Some people just hate debt. They never had credit card debt and they pay a huge down payment on their car so they do not have to worry about debt. However, sometimes it is good to do this with mortgages and sometimes it is not.

If your mortgage rate is at 6% for 30 years that means when you pay it off earlier you are getting 6% return. If you examine historical stock charts that 6% is not a good long-term bet versus investing in the stock market.

  • So if you have other debt at higher rates it pays to pay those off first and then put more into your mortgage.
  • If you are a conservative investor and do not like to take on a lot of risk then it might be best to get a 15 year mortgage and you will be saving money with a lower interest rate and making that guaranteed return.
  • If you are closer to retirement and your home has greatly appreciated it is ok to take on more debt there because when you retire and sell it you will have more money going towards your retirement.

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