OT/ Mortgage question

C

CathydsRNA

Cathlete
Help, I am not at all a financially inclined and have a motgage question. I have a mortgage (80/10) in which I pay off principal only for the first 10 years. My interest is also fixed for the first 10 years at 5.5%. I can afford to make extra payments every month. My question .....is it better to make extra payments toward principal or interest and why? TIA.
 
Definately make the extra pymnts toward your principal balance. As the principal balance goes down, the total amount of interest you have to pay over the life of the loan will naturally go down and you will save yourself money. If you pay extra towards the interest you can pay off the loan faster but you are not saving yourself any money so it's not worth doing.

HTH.:)
 
Thanks, I am definitely interested in saving money. I didn't know if I would cut money spent by paying off the interest sooner. I am glad you clarified. Thanks
 
Hi Cathy. If you only pay principal for the first 10 years, what do you do at tax time? If I'm getting too personal tell me, but for us one of the best things about buying the house and having the mortgage is the deduction for interest at tax time - which is huge. When you pay only principal, do you have no tax deduction at all?

Lorrie
 
Good point. Need to factor this in as well. I get to deduct points and closing costs from settlement as well as taxes that I now have to pay, property and county. Motgage Interest of course is also deductible which is the point you were raising. Based on tax savings vs cutting total amount of money paid, what is your opinion? Thanks.
 
I know looking at prepaying mortgage debt looks huge but consider paying off higher percentage debt first, ie charge cards that are 14 - ??%, auto loans at 10 %.

In the long run you'll be better paying off debt that isn't tax deductible early rather than the mortgage.

Dave
 
Hi,
I pay off my credit cards monthly and I own my car so this is not an issue and is not relevant for me. My question pertains to what is better, pay the interst and get a bigger tax deduction or pay into the principal.
Thanks
 
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