Paying extra toward principal can definitely help when rates are higher because it reduces the balance you’re being charged interest on. However, before making any larger principal payments, I would check the prepayment penalty terms on your specific loan. Depending on how the prepay is structured, paying down too much of the principal early could potentially trigger the prepayment penalty.
If you want to pay extra, the best approach is to first confirm how much additional principal you’re allowed to pay each year without penalty. That way, you can take advantage of reducing the interest you’re paying without accidentally creating an additional fee.
Real Estate Agent · Chicago, IL · Member since 2017 · 2k+ posts · 2k+ votes
1mo
I always recommend my clients to put the minimum down for the property to be self sufficient and never to add extra during the loan. The more you put down or add, the lower your total return will be. Hoping to pay off a mortgage early feels good but real life nearly all the return is leveraged appreciation and the less you have in the deal the higher your total return in.
Banker · Nationwide · Member since 2020 · 2k+ posts · 1k+ votes
1mo
Brendan,
Depending on your situation it's a little different for each person based on that question. If your rate is high you can look at doing a refinance. Depending on your equity it might make sense to pull cash out and use it for a down payment to buy another REI and use that to offset the current mortgage using cash flow to pay off or down the mortgage faster.
It could also increase passive income and offer a better tax deduction from a Schedule E standpoint if your W2 or 1099.
You can also look at the Bi-Weekly payment which is a little bit of a trick to help pay off the mortgage sooner. You can search the internet for an "Amortization calculator (with extra payment). That will show you exatly what to pay and how often to hit your pay off goal.
Depends on your personal situation. What would be your intended goal with making more principal payments? Even with rates in the high 6s or low 7s, you could probably invest that money elsewhere to make more money. I've seen some calculations suggest that if you make a few extra principal payments per year you can pay off your loan about 5 years sooner assuming a 30 year loan term.
Also, estimates indicate 90-95% of homeowners sell or refinance their loans before they reach the 30 year loan maturity. Most homeowners sell or refinance after about 5-7 years.
Data from organizations like the National Association of Realtors (NAR) shows that the typical homeowner stays in their home for a median of 10 to 13 years before selling.