Home Selling in 68046>Question Details

Owen Rocke, Both Buyer and Seller in 68046

Is paying extra to my principle a smart move?

Asked by Owen Rocke, 68046 Tue Mar 31, 2009

I've recently bought a house with a VA 30-year fixed mortgage. Since I'm military, I know that I will be moving out eventually, probably somewhere around 4 to 5 years from now. Is it financially sound of me to pay extra into my principle? With such a relatively short time frame, will the extra equity really make that much of a difference when it comes time to sell? I like the prospect of owning more of my home, but part of me thinks I should be bulking up my savings more, or perhaps investing somewhere else.

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The answer is really very complex. Others have raised good points. Is your next home going to be one of the same value or more? If it's more, that's a case for paying extra. On the other hand, if you want to buy the next one before this is sold, you will need that additional money more as cash than as equity. Then there are interest rates. If you can safely invest and receive higher interest than your mortgage, that is a case for not paying extra. My own feelings are always to pay down your mortgage when you can. There's a feeling of safety and ease to this that I personally like very much. Making half payments but twice as often will help do this as well as simply adding extra to the principal. It can create some record-keeping nightmares, so make sure you are careful in your notes about how much and when you pay unscheduled payments.

If you were not planning on moving so soon, I would be stronger in urging you to make the extra payments.
0 votes Thank Flag Link Sat Jun 22, 2013
I think you should learn from the best http://www.daveramsey.com/home/ if you are going to keep the house go for it and find out that you will not get penalized. He will tell you that if you are planning on moving renting is not a bad idea. Specially when there are no intentions in keeping the house. Also, in the future when you buy the house that you will keep, Dave Ramsey advises not to go VA, to go with a 15 year mortgage and give 10 - 15% down payment, also make bi-monthly payments. I just finished taking his class Financial Peace University through the military chapel, lots of great info.
0 votes Thank Flag Link Sat Jun 22, 2013
Paying off principal early never hurts, unless you actually needed that money for something else.
Once it is paid forward, that money is theoretically 'gone' for now....until you sell down the road.
So make sure that you save cash for home improvements and emergencies.

Something that I have seen is to make sure that you have all your insurance up to date while being deployed.
I had friends and family who lost nearly everyting during Katrina while being deployed over seas.
I know this is an extreme example, but a lot can happen while you aren't around.

Best of luck and thank you for your service to the US!
0 votes Thank Flag Link Tue Nov 9, 2010
Good question! Many financial advisors say that, before you pay off your mortgage, make sure you are paying at least 15% of your income into a retirement savings account. Also make sure you have saved an emergency fund equal to at least 6 months worth of living expenses. If you’ve done both of these, next consider all your other options for investing the extra money you have. Laura Rowley at Yahoo! Finance says studies have shown that most homeowners are better off saving more for retirement than paying off the mortgage, especially if they are putting the money into a tax-deferred retirement plan (such as a 401K). Read her analysis at http://finance.yahoo.com/expert/article/moneyhappy/.
0 votes Thank Flag Link Tue Nov 9, 2010
Dear Mr. Rocke:

I believe your gut feeling is right on target. Since you are military you will not gain much in putting it on the equity of your home. Invest on something that is sound and will give you a good return.

Lily Fava-Mann
lily_fava@hotmail.com
http://www.lilyfava-mann.com
(318) 366-6377
0 votes Thank Flag Link Tue Mar 31, 2009
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