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My goal is to pay off my mortgage early. There are two ways that I am considering doing this:
Thoughts on pros/cons of each option?
Option 2 would be logical, if the interest rate in your savings account had a higher percentage then your mortgage rate.
Well of course not. Mortgage rate is 3.875 and the highest savings rate I could get would be about 1%.
Then your throwing away money by keeping it in savings if you are planning to use that money to pay off the loan.
It's actually more intriguing than it looks on the surface... Cash in savings is obviously a lot more liquid, and that liquidity adds value, it's just hard to put a number to that value... i.e. is it worth ~2.35% in this case?
What about contributing extra to a 401k or other longer-term investment that has a chance to yield more than your mortgage rate?
Because the ultimate goal is to pay the mortgage off. Not to increase my 401k. I want to be free of the burden of a mortgage.
@tim2 wrote:Because the ultimate goal is to pay the mortgage off. Not to increase my 401k. I want to be free of the burden of a mortgage.
I don't know what the solution is, but clearly you could make more than your current interest rate if you invested the money properly, then utilized it to pay the mortgage when you have enough. Lots of ways to invest that could yield more like 8 perecnt on your investment instead of the 3.6 or whatever
-scott
If you have 0 in savings, then it would be unwise to just throw it right at the mortgage. In other words, there's no ONE way to do this. It depends on your situation.
Follow my financial journey: http://www.frugalrican.com
Thanks Frugal - that is what got me to thinking about the other option as well. If I just pay everything towards my mortgage then I will have no savings. But if I throw everything into a savings account (online one to make it not so easily accessible) and then just pay lump sums towards the mortgage periodically I would be accomplishing the same thing - but I would just have a safety net.
I'd much rather have a mortgage paid on time as agreed regularly with a 6 month savings reserve than have a mortgage paid "6 months in advance" with no reserves. These forums have plenty of cautionary tales that although the money is there "right now", we are always a day away from an unexpected expense/circumstance that could rock our financial world.
There's nothing wrong with wanting to bring down your loan total quicker, but don't do so at the expense of having no money saved up. 2008 taught me and many others plenty of lessons about that.
Good luck!
Follow my financial journey: http://www.frugalrican.com