Paying off Mortgage

14 Replies

I am refinancing my house and will sign papers in October so I won't be required to make 2 months of payments. Should I save that money and put it towards other investments or should I put that money towards paying down the principal of the mortgage?

@Kyle Keller it would depend on your overall financial situation. Do you have enough reserves? What is your plan for using debt? Would those 2 payments make a difference in a particular investment or purchasing a new one? If you have any consumer debt, that would take priority in my book, then the 6 month back up plan, then looking at the most bang for the buck pertaining to my whole portfolio. Lots to think about! If you are refinancing, hopefully you already cut some years off your mortgage and can put this towards something else, or if you stretched it back out to 30 years, clearly paying it off early isnt the focus. I'd put it somewhere else.

@Kyle Keller

Never pay down a mortgage. Generally mortgages have long amortizations and low interest rates. The payment amount is fixed regardless of how much principal you owe. So what is the incentive to make an additional principal payment; to avoid the last two payments due in oct/nov 2050? That's crazy. I am a proponent of having some real estate owned free and clear, my cash cows, to provide protection for my leveraged properties but for me it's an all or none proposition and I don't see value in playing but the middle.

@Eric Ashby

I like this mindset a lot and will start to think about it this way. How did you go about paying off the certain cash cow properties? Would you make higher payments over time or lump sum to pay off the entire thing at once?

@Kyle Keller

I would not make higher payments over time. For me the risk of not having liquidity is not worth the minimal benefit of paying down a mortgage (same payment until it’s fully paid off). Save cash in a liquid manner up to a level you feel comfortable with to cover reserves then use excess to purchase more properties.

Due to the power of leveraged inflation over time you can refinance or sell properties that have appreciated and use the capital from those transactions to pay off lower / higher interest mortgages.

This takes time to grow a portfolio and develop the capital to be able to take this sort of action. I kind of stumbled into this and wish I would have thought this way earlier in the process to be best prepared on how to manage my real estate “balance sheet”.

@Kyle Keller , this is a great question and one only you can answer, by answering other questions of course. What is your long term plan? Is this the only property you plan to invest in as a rental? Do you need extra reserves that you don't currently have? Have you maxed out your TSP this year? Are you looking for other investments? Are you investing for cash flow or looking for fast paydown options to build wealth more rapidly? Although this will be a small amount of money (all things are relative) this will not be the last time you are facing this question. For example, I am currently finishing a BRRRR and am cash-out refinancing. I am not worried about the cash flow because I don't need it. As a result, I am looking for the shortest term note I can find in order to make a small amount of CF, or even just break even, get all of my money out, and then pay off the mortgage as soon as I can. That wouldn't work for everyone. I have the luxury of being in a different situation. Anyone that says you MUST do this or MUST do that is talking from their perspective, not yours. Take their opinion as that, but you do what you are comfortable with base on your situation.

Good luck on the transition!

@Kevin Hunter

I am currently at a 30 year loan and am looking to save up as much as possible in order to get out of the Navy and pursue a career in real estate investing. So I will be saving the money to put towards future investments. Thank you for your wisdom!

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