Mortgage Prepayment

Question: We are considering prepaying our mortgage, but may only be living in this house for three more years. What are the pros and cons of prepaying?

Answer: Adding to mortgage payments can significantly decrease the loan interest you pay in the long run. But with planning on selling in just 3 years you wouldn’t have time to take much off your total bill. Most important, you should pay off higher-interest loans with any extra money. Then, you should ask yourself what else could you do. For example you may be able to net more if you invest the money at a higher return than your mortgage rate. Even if the interest saved looks attractive, remember it’s tough to access the money in prepaying your principal - you’d need to take out a home-equity loan (and pay interest) or sell the home. Also, you cant skip future mortgage payments just because you’ve paid extra in the past.

Resource: Kiplingers, October 1998

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