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Question for the Money Doctors

Question submitted on Mar 21, 2011.

Question

I am currently 27 years old and little to no debt. I have an additional 2K which i am interested in applying to my mortgage. The current amount is 222,000.00 I also have a tenant who pays the rent. I used a calculator and it stated that i could pay it off in 7 yrs by paying the extra 2K a month. I am in the 25% tax bracket. Is this a great idea?

Answer

If you have an additional $2000 per month to put towards your mortgage, that will definietly decrease the term. You also have to consider what your other options are for using the additional funds.  For example, if you don't already have liquid savings equivalent to six months expenses, you should first save that amount.  Then you should be putting away money for your eventual retirement (it sounds like it's a long way off, but the earlier you start, the better).  And finally, what kind of returns could you get if you invested the money instead of putting it towards the mortgage?  Right now, with interest rates being so low, making extra payments on the mortgage may be a good investment alternative, since you probably won't earn more than the interest you're paying.  But you realy should take this action only as part of your overall financial plan.


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