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Author: 2gifts Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 308557  
Subject: Re: Why is Mortgage Debt "Different" Date: 3/5/2014 8:24 AM
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Right now, according to Quicken, if I throw $1k/month at the debt I'll have the house paid off in less than 7 years. That's six years longer than I'd like. I will have to look at what my risk tolerance is and the likelihood I will earn more in the market (after fees and taxes) short term vs. just applying it to the principal.

To me, the biggest risk of putting your extra money towards the mortgage now vs. putting it into a separate account, whether that is just a savings account or an investment account, is that if you do have an emergency such as you lose your job, you will still owe that mortgage payment every month until it is completely paid off. So if you are 6 years down the road and only owe one more year on your mortgage, but you lose your job and have no income to pay that monthly mortgage payment, your house is still at risk of foreclosure.

If, on the other hand, you have squirrelled away that extra money and you lose your job, you just tap that money to make the monthly payments, and the risk of losing your house is less. Until a mortgage is completely paid off, you still owe that payment every single month, and it does not matter to the bank that you have shaved principal off with extra payments.

For that reason, I find putting the extra money aside until you have enough to pay off the entire balance to be the less risky action. And you'll probably still end up paying it off pretty close to the time you anticipate by prepaying the mortgage. You might even be able to pay it off sooner if you invest the dollars and make a better return than you are paying in interest, which is definitely possible especially given the low rate of your mortgage.
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