Worth it to pay a little extra on a 30-year loan?

Question

Hey all!

I ended up with a unicorn LTR that cash flows a significant amount each month. We're looking at $745/month cash flow even after very cushioned expenses (vacancy/maintenance/capex). Obviously, we are THRILLED to have this property.

I'm curious: From a loan perspective, would it make any sense to pay off a little extra each month? Even if it's just $50-100. I've looked at all the mortgage payoff calculators and see how much money I can save in the long run, but it's hard to wrap my head around the pros and cons of doing this for a 30-year loan.

For extra context, we renovated the property and have a lot of equity, so there might be a time when (if interest rates go down) we do a cash-out refinance to grab that equity. That might make the extra monthly payments pointless?

Thanks all for your input!

Ned J. · Answer

Depends on your rate. If its in the 6-7%, then maybe.... 4-5% then probably not.

The thing I look at also.... lets say you pay an extra $100/month..... that's $1200/year..... is not having that $1200 sitting in an account waiting to be used on the next deal or next investment going to stop you from being able to buy that deal? If you have plenty of other capital to deploy, and paying down that loan a bit quicker isnt going to keep you from continuing to invest in other avenues, then I don't see a major downside. I see it as a form of investment diversification...safe.... not sexy.... not a big $$ maker.....but thats ok...as long as you have plenty of other investments that pay much better.

Ned Carey · Answer

@Kaylee Walterbach this is a relatively easy decision.

Any money you use to pay down a mortgage faster is the same as investing that money and earning the same rate as the mortgage.  In other words if your mortgage is at 6%, are you happy investing $50-100 a month at 6%?

Even if you are, consider that the money is tied up until you sell or refinance the property.

Kaylee Walterbach · Answer

Amazing input, thanks all. Our loan on this property s at a miraculous 3.25% (thanks, 2020!) so it doesn't make sense to tuck that extra money away into this mortgage. Actually, our second property is at a much higher rate, and we used a HELOC for some reno, so it absolutely makes sense to put the money towards those first.

I guess our lender is just too good at convincing us to pay extra money that it distracted me from common sense... haha!

Benjamin Aaker · Answer

Compare the cost of your mortgage vs what you can make by investing that $50-100. I generally don't pay extra on my mortgages because I'm always looking for that next deal. If you are not planning on investing right away, paying down the mortgage might be a good idea. Later taking out a line of credit or refinancing would be a good strategy.

Worth it to pay a little extra on a 30-year loan?

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