Additional payments on your rental property mortgage

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Additional payments on your rental property mortgage

Shahil Keshav

Member since 2022 · 7 posts · 3 votes

Hello All,

Any strategies on how to approach making additional payments towards rental property mortgage?

Monthly extra payments?

Lump sum payments once a year?

Start a high yield savings account, CD, money market and use this to pay lump sum once a year?

I would appreciate any feedback.

Thanks!

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Allan C.

Rental Property Investor · Member since 2018 · 826 posts · 810 votes

@Shahil Keshav build equity faster to cash-out refi is such a contradictory statement. Please think about that strategy further to see if it really makes sense.

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Matthew CrivelliBusiness Member
Lender · MA · Member since 2021 · 1k+ posts · 1k+ votes
2y
I would talk to the original lender before you make any principal payments. With commercial DSCR loans that have prepayment penalties, (could be similar with other products as well) if you make a principal payment before the pre payment penalty expires, it will trigger the fee. Obviously, if you don't have a pre payment penalty, no need to worry.
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Marco Bario
Specialist · Frederick, MD · Member since 2017 · 474 posts · 454 votes
2y
It depends on your goals and the interest rate.
If your goal is to invest in more assets, and you have a low mortgage rate, why not take advantage of current 5%+ treasury money market returns (Vanguard has a couple with good returns and very low fees). I like these because they're fully liquid (you can withdraw at any time).
If your goal is to have one free and clear property or the mortgage rate isn't favorable, perhaps create an amortization schedule that pays off whenever you target and make that your new monthly payment.
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Jay ThomasPro Member
Real Estate Agent · Houston, TX · Member since 2021 · 1k+ posts · 715 votes
2y
If you want to pay off debt faster and increase cash flow, consistent monthly payments might be best. But if you prefer flexibility and higher impact, annual lump sums could work. With monthly extra payments, you make consistent progress, save on interest, and stay motivated, but it requires steady cash flow. Annual lump sum payments offer more impact and flexibility but less frequent progress and potential temptation to spend. Consider high-yield savings options, too, for potential interest earnings. The best strategy depends on your situation, so do the math and talk to your lender for guidance on prepayment penalties and loan terms. Combining methods might be ideal, starting with monthly payments and adding lump sums when possible.
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Joe VilleneuvePro Member
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
2y
Why do you want to make these extra payments? All you're doing is paying more for your property.
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Shahil Keshav
OP
Member since 2022 · 7 posts · 3 votes
2y
Quote from @Matthew Crivelli:

I would talk to the original lender before you make any principal payments. With commercial DSCR loans that have prepayment penalties, (could be similar with other products as well) if you make a principal payment before the pre payment penalty expires, it will trigger the fee. Obviously, if you don't have a pre payment penalty, no need to worry.

Thanks Matthew. No pre payment penalty so we don't have to worry about that.
0 Reply
Shahil Keshav
OP
Member since 2022 · 7 posts · 3 votes
2y
Quote from @Marco Bario:

It depends on your goals and the interest rate.
If your goal is to invest in more assets, and you have a low mortgage rate, why not take advantage of current 5%+ treasury money market returns (Vanguard has a couple with good returns and very low fees). I like these because they're fully liquid (you can withdraw at any time).
If your goal is to have one free and clear property or the mortgage rate isn't favorable, perhaps create an amortization schedule that pays off whenever you target and make that your new monthly payment.

The goal is to build equity in property quicker to eventually cash out re-finance. Would like to be more equity heavy then debt heavy.
0 Reply
Shahil Keshav
OP
Member since 2022 · 7 posts · 3 votes
2y
Quote from @Jay Thomas:

If you want to pay off debt faster and increase cash flow, consistent monthly payments might be best. But if you prefer flexibility and higher impact, annual lump sums could work. With monthly extra payments, you make consistent progress, save on interest, and stay motivated, but it requires steady cash flow. Annual lump sum payments offer more impact and flexibility but less frequent progress and potential temptation to spend. Consider high-yield savings options, too, for potential interest earnings. The best strategy depends on your situation, so do the math and talk to your lender for guidance on prepayment penalties and loan terms. Combining methods might be ideal, starting with monthly payments and adding lump sums when possible.

Thanks Jay! The potential for interest earnings can increase our lump sum payment which is why I took that into consideration. The idea would be to either fund a HYS/CD/Money market and let it grow, then make the lump sum payment at end of year.
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Lynn McGeein
Real Estate Agent · Virginia Beach, VA · Member since 2012 · 2k+ posts · 1k+ votes
2y
@Shahil Keshav why would you pay more now just to pay a lender more loan fees to cash-out refi later? If you have a decent interest rate, I don't see a need to pay it down more than payment unless your goal is a paid-off investment. Invest extra money in a high yield account, and use those funds for whatever you wanted to eventually cash-out refi for. If you're trying to eliminate a PMI payment or something, then it makes sense, but read your loan docs as that's harder to do than you expect.
1 Reply
Allan C.
Rental Property Investor · Member since 2018 · 826 posts · 810 votes
2y
@Shahil Keshav build equity faster to cash-out refi is such a contradictory statement. Please think about that strategy further to see if it really makes sense.
2 Reply
Jay HurstBusiness Member
Lender · Dallas, TX · Member since 2017 · 1k+ posts · 1k+ votes
2y
Quote from @Shahil Keshav:

Quote from @Marco Bario:

It depends on your goals and the interest rate.
If your goal is to invest in more assets, and you have a low mortgage rate, why not take advantage of current 5%+ treasury money market returns (Vanguard has a couple with good returns and very low fees). I like these because they're fully liquid (you can withdraw at any time).
If your goal is to have one free and clear property or the mortgage rate isn't favorable, perhaps create an amortization schedule that pays off whenever you target and make that your new monthly payment.

The goal is to build equity in property quicker to eventually cash out re-finance. Would like to be more equity heavy then debt heavy.

So, you are going to pay down your mortgage with your after tax dollars to pay down debt that you will then turn around to pay closing costs to recoup? Not to be to blunt, but that makes zero sense.
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