Mortgage Matters: Mortgage Pre-Payments Strategy?

Filed Under Buyers, Mortgage Matters, Sellers, Sellers & Buyers |

Many clients that we sit down with are of the belief that pre-paying their mortgage (either by additional principal payments, bi-weekly plans, etc.) is a sound financial approach; however, that “conventional wisdom” isn’t very wise. In reality, what the pre-payer is saying is this, “Here’s an extra $1000, Mr. Banker. Please don’t pay me any interest on this money, and if I need it back, I will pay you fees, borrow it on your terms and prove to you all over again that I qualify.” Money you give the bank is money you will never see again until you sell the home or go through the expense of a refinance.

We have already proven that Home Equity Has A Zero Percent Rate of Return. There is no logic to put your cash into an investment that has no rate of return; and further, it is an investment that is not liquid or safe. You are actually better off burying that $1000 in your backyard because at least, in that scenario, your cash is liquid and safe.

At the same time, handing your lender $1000 today that they weren’t expecting for 30 years is a windfall for THEM.

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