Putting Extra Money Towards the Principal of Your Mortgage

[Thomas O'Donnell]

I am looking for some advice on if I should make extra payments per month specifically towards the principle of my mortgage. I currently own a duplex and live in one side. I used 0% down financing in order to get this property, so my payments are higher than most and my interest rate is not the best. However I did buy $14k under what the property was appraised for (I know that doesn't mean much). Since in the beginning most of the mortgage payment goes towards interest, should I make extra payments towards the principle (was thinking of 10% of the monthly mortgage so $250 or more)?  Or should I instead put that money away in savings to use for future investments? My goal is to buy a 4plex property sometime in 2023, and then move in there to house-hack again (and have a total 6 doors by the end of 2023). I am struggling a little bit to come up with a plan that can get me to that 4plex next year. Let's just assume I am starting back at the very beginning. What are some things I should be doing to make sure I can get that next property? Does it make sense to put more money into my current one and then try to pull it out later for the next one? Does anyone have some strategies of how I can get into that next property with little money or by doing something more creative than I did with this one? Any input is greatly appreciated, and happy investing!

[Kevin Sobilo]

@Thomas O'Donnell, the first question is easy in my opinion. Don't put that money towards your mortgage. Save it up for the next property.

If you bought the property in the last few years, your equity in the property is minimal. You likely can only refinance up to 80% of the value out of the property to get money towards buying another property. If you do not yet have over 20% equity, that money you would pay on your mortgage would only go towards getting to that point.

Also in order to refinance out money from your existing house you either need to refinance your existing mortgage and replace it with one at a higher rate of interest since interest rates are higher now OR take out a 2nd mortgage or HELOC for a smaller amount which come at even higher rates.

The point is that borrowing isn't cheap or free and I didn't even touch on appraisal costs etc.

So, why borrow against your equity and pay all of that when you can just save money for a down payment. 

[Joe Villeneuve]

Enormous mistake.  All that does is cost you more money.  See @Kevin Sobilo above for some of the reasons.  Bottom line is this.  Your cost to buy as an investor is only, I say again, ONLY, the cash you put into the deal.  If you have positive CF, the tenant is paying your mortgage...why do their job when they are doing it for free?

[Kenneth Garrett]

@Thomas O'Donnell

This comes up a lot on here. There are some scenarios where it might make sense as in retirement, but in your case you should keep that money for future possible investments. Just remember when you buy your next investment your DTI will impact your capability to borrow (mortgage) again using residential mortgages. Your DTI is not going to change based on you paying down the principle. I agree with @Kevin Sobilo and @Joe Villeneuve keep your cash for yourself.  

[Eliott Elias]

I wouldn't, use your cash to buy more property, this is the greatest opportunity ever 

[Adam Martin]

Nope, I see where you are coming from but if you put the money down now to pay down your mortgage but intend to use this money later to buy another property you are most likely paying down a lower interest rate to refinance that money at a higher rate.  You aren't going to want to pay interest on money you already have when you can be making interest on it now and using it for free later.  Decide on what you realistically want your timeframe to be and work on a cd ladder to get you to that date reinvesting your cash as you have it.