Is paying down a mortgage the best choice?

8 Replies

So DH and I are looking at some long term investments. We hope to start buying property in five years or so. We will be 50. First we need to pay off some debts and save some money. DH has a full time job he loves, and I'm a homeschooling work from home mom. In five years I will only have one homeschooler and my time will be freer for property management tasks.

We would ideally like to have rentals to help us with income during retirement. Would the best plan be to take all of the rental payment and put it towards mortgage (after saving a set amount for repair emergencies and or vacancies of course) so we can pay them off more quickly and have retirement monies at 65? DH's income is plenty for now, and he has a pension, but I want to work on ways to increase our retirement income and this seems smart!

Anything I'm not thinking of here?

I am hesitant to put extra payments towards the principle on a house loan. Here's why. If your DH loses his job, gets sick, or some other bad thing happens, you will have a very hard time accessing that money (other than selling the house). Just something to think about.

What about equity loans in the case of an emergency? Also, if DH got sick or something, we could use the cash flow at that time and stop the extra principle payments. What would you do with the extra money if you weren't putting it on the mortgage and didn't need it to live on?

BTW, we are currently doing Dave Ramsey, and we will have a 3-6 month emergency fund in place before jumping into Real Estate investing.

I'm a complete newbie here, just trying to learn a bit about the trade before we jump in, so please be gentle! LOL!

@Bryan L. Agreed.

Build your properties cash reserves so it's self sustainable. Any additional cash flow can be used towards maintenance, capital expenditure budget (saving for new roof etc), and increasing curb appeal. Having a cash reserve and a mortgage isn't a bad thing. Don't look at the morgage as consumer debt, like credit cards, look at it as productive debt which is allowing you to build wealth.

I have a 30 year mortgage, but have been paying it down as though it is a 15 year mortgage since I bought my property. Even though I am doing this, it still provides cash flow. I realize that this will mean a slower saving for my next property, however, I have a more conservative investment philosophy.

Hi Edith! Your question, on the surface, is a simple one -- but it is one that will get all kinds of answers from different investors. And there's really no one 'right' answer. You can look at it the complicated way (optimizing your leverage, calculating the time value of money, tax ramifications, how can I grow my business most efficiently, etc) or you can look at it the simple way (I just want to own some houses outright when I retire and not have to think too much about it). It's really a matter of personality and preference

Hopefully you will find properties that have enough cash flow that you could get the properties paid off fairly quickly. You could get 15 year mortgages which usually offer a better rate than 30 yr mtgs and have them paid by around your retirement date. Illinois is a good market for cash flow, so you should be fine!

Make sure you read the "Free Beginner's Guide" (under the "learn" tab at the top of the page)

Your money can obtain a higher return invested in many other places. If the property has positive cash flow I would be looking to invest the cash in something else that can create a cash flow stream.

I do exactly that. Use all free cash flow to pay off mortgages. I expect all the mortgages to be paid off in under 10 years. This is how money compounds in a rental home. Of course everyone's situation is different. I have plent of income and other assets and the rental homes are just one part of my portfolio. If I did not have a very substantial cash cushion I would accumulate cash first.

I used to have fancy ideas about leveraging etc until I actually tried my hands at it. Realized that playing with leverage is really a mental game as much as it is mathematical, and I wasn't mentally up to carrying a whole lot of debt, so nowadays, I just do what lets me sleep best at night.

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