Column: Should you pay down your mortgage early or not?


A question that my subscribers have asked lately is, should they prepay their mortgage, eg. make extra principal payments every other month?

As an example, if you had a $500,000 mortgage at 4.5 percent interest and made payments of $2533.43 per month and made an additional principal payment every other month, you would save 32 percent or $286,450 of the normal interest of $912,032, over a 30-year payout and also reduce the amount of time by 19 years and 8 months. This is a very substantial savings of interest and time, which substantially ramps up your equity and wealth factor for a potentially more rewarding and comfortable retirement.

As you can observe from the previous example, the savings on interest is quite amazing and absolutely enables you to keep more of your hard-earned dollars in your pocket. The critical and crucial question will be, do you have the mental attitude and discipline to stick with this beneficial payment option and keep it on a schedule year after year?

Only you can determine if you have what it takes to do it! Now, you don’t necessarily have to be as strict and disciplined as to have to pay an exact principle payment every other month; but you can choose whatever amount of principle you can comfortably pay, every other month and ask your lender what the effect it will have on your total interest payments and years saved over the life of your mortgage.

This will take a bit of planning and again, discipline and consistency, as well as reducing available funds for other discretionary spending; but, I can assure you, that it will be worth it, when you look back and realize and know what you have accomplished in paying off your mortgage earlier than most!

One must, as they say, “bite the bullet” in building and creating your wealth, for a brighter future. I am not saying this will be easy, but if you put your mind to it, you will succeed! Most importantly, as you build equity over the years, this will enable you to tap into it, if need be, for upgrading and renovating or possibly using the funds for a vacation or retirement home or condo down in the warmer climates.

The savings will also be a hedge against reductions in social security benefits, which I fear, the way the country is proceeding in their outlandish spending and deficits, it will potentially be an inevitable outcome, if a solution isn’t strategized and dealt with in the near term.
Real Estate is a limited commodity and as long as they aren’t growing anymore, it isn’t replaceable. So, values should continue to increase over the long run. Whoever thought years ago that prices would be where they are today?

So, owning your own home, as well as any other real estate investments (and maybe taking classes and learning how to invest in the stock market long term), will provide the necessary security for one’s retirement.
If you are not in a position to pre-pay your mortgage as explained in the previous example had shown; the next best thing to do is try to make some type of principal payments when you have the extra money and are able to do it.

However, not to change the subject, but there could be an adverse effect on our deductions, if our income taxes increase and/or income tax brackets radically change and deductions reduced; due to our very serious national and international deficits; which somewhere along the line, must be paid; or do we consider bankruptcy or insolvency as a nation?

I dare not think so, but, our government must very, very soon start putting their foot down and begin figuring out how to decrease spending. Looking back, it has been a “pork barrel” for 242 years.

However, with the new 4.5 trillion dollar budget that President Trump has proposed (that’s four thousand five hundred billion dollars!!!), we are just adding to the burden that our grandchildren and future generations, will have to deal with when we are gone.

What may have worked in the past, to reduce deficits aren’t necessarily going to work today in solving our current fiscal problems or those going forward; and my fear is that we are running out of time.

A few weeks ago, I sat in the office of a very important and wealthy client of mine and discussed the state of our state and country and the loss of Amazon and the billions of dollars and hundreds of thousands direct and indirect jobs that could have been created, but were lost; that would have been a benefit to New York City, its five boroughs, as well as the side benefits that would have been derived by Long Island and its local towns and our real estate values.

Yes, some would wonder why did Mayor Bill Di Blasio and Gov. Cuomo, and others offer $3.1+ billion in tax credits and incentives to such a wealthy company and Jeff Bezos (worth approximately $150 billion+).

The answer was and is the near and long term benefit that would have pumped our city economy with, as per Gov. Cuomo was quoted In the Washington Post on November 13, 2018, nine times the incentives provided in the tune of 27.5 billion and I am quite sure, Long Island would have had some side benefits too.

We might be heading into a recession down the road and those much needed jobs would have truly bolstered our economy and the side benefits would have been humongous and trickled down to many businesses and individuals (hotels, doorman, restaurants, vendors, cultural venues, etc.).

The displacement of tenants in rentals, which would have increased in price, created a grassroots effort by Congresswoman, Alexandra Ocasio-Cortez with Congressman Michael Gianaris and City council member Jimmy Van Bramer, to create and grow a mass opposition against having Amazon in Long Island City.

But one possible solution could have been to have the city use some of their windfall and construct or at least have renovated a few of their idle and empty buildings to house those people. Maryland offered $8.5 billion and New Jersey offered $7 billion to attract Amazon; so our incentives paled in comparison. My professional opinion is the benefits surely outweighed the detriments of the New York incentives.
Your thoughts?

Philip A. Raices is the owner of Turn Key Real Estate in Great Neck. He is a Graduate of the Realtor Institute (G.R.I.) and also a Certified International Property Specialist (C.I.P.S.) He can be reached by email: Phil@TurnKeyRealEstate.Com or by Cell, (516) 647-4289 to answer any of your questions. To search for property, see what your home is worth or homes that have sold in your area, go to: WWW.Li-RealEstate.Com or we can provide you a free CMA (Comparative Market Analysis) absolutely “free” without obligation and no strings attached!


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