The BIGG Successs Show
9 Questions to Answer Before You Make Extra Mortgage Payments
Learn how to make sure you're putting your money into the right place. Read our show summary at biggsuccess.com.
Welcome to The Big Success Show. Today, we'll discuss nine questions to ask yourself before making extra mortgage payments. The Big Success Show, with George and Mary Lynn. We received a big challenge from one of our listeners, Randy, and Randy's thinking about making extra payments on his mortgage. He thought about actually paying every two weeks instead of every month. By doing that, of course, he'd pay off his mortgage faster. He wants to know if this is a good idea. And, Randy, the essence of your question is, is it a wise investment to pay down your mortgage to get rid of that debt, or are you better off investing in something else? And here at Big Success, we're all about passive income. In fact, the goal is to help you find the path to not just financial freedom, but something much more important. Time freedom. And passive income is the way you do that. If you have enough passive income to support your desired lifestyle costs, you're totally free. So, Randy, what we're gonna do is not necessarily give you a direct answer to your question. What we are gonna do is give you nine questions to ask yourself so you can determine if it pays to make extra payments on your mortgage. And we probably should say, Mary Lynn, these questions might be easier to read in some cases. So, we're gonna go through them, but they're definitely on our blog today that's important to you to understand these concepts and questions. Right, at BigSuccess.com. Question number one, do you have any other debt? Chances are your mortgage is the cheapest debt that you'll ever find after taxes are considered. So, if that's the case, you should pay off your other debt first before you start making extra payments. Number two, do you have an emergency cash reserve? General wisdom among financial planners is that you should have somewhere between three to 12 months of living expenses in an account that's readily available. And number three, how good is your credit rating? If you get a great credit rating, you're more likely to be able to borrow money at a reasonable cost should you need it. This is really important before you make extra payments because those extra payments are sort of like investing in something you can't get your money out of right away. So, if your credit score needs improvement, work on that before you start making extra payments. Number four, how do you feel about debt? Some people just don't like having debt at all. It keeps them awake at night. So, if that's the case for you and you're happy with the answers to the previous three questions, then by all means, make extra payments. And this next question is a bridge question. The question you just talked about Maryland completely personal. There is no right or wrong. It's an individual choice. I like those questions. They're easier to answer. They may be harder to answer, right? The thing is, this question is going to get you ready for the next set of questions. And those questions are what's your best financial move? So, question number five, what's the interest rate on your mortgage? Bottom line is this. You're going to compare this rate to other things you could invest in. If your mortgage costs, let's say five and a half percent, but you could earn eight percent, it may not make sense for you to make extra payments. George, you mentioned how it might be easier to take in all these questions on our blog today. And on the blog, you're going to find exactly how to calculate this interest rate. So, check it out at bigsuccess.com. And coming up, the four final questions you should ask that would help you determine your best move financially. Today, we're answering a big challenge from Randy, who's considering making extra mortgage payments. We've talked about five questions so far. What's the sixth, Maryland? Number six, how disciplined are you? If you're likely to just spend the extra money that you're thinking about paying on your mortgage, then by all means, just put it towards your mortgage. If you are disciplined, or at least have the discipline to set it up automatically, which we did a show about not too long ago, and you'll find that link on our blog today as well, then move on to the next question. Yeah, next question is, number seven, when do you plan to retire? And here's a basic rule. The longer you have until you retire, the more aggressive you can be in your investing. Making extra mortgage payments is considered relatively conservative. So if you got a relatively short time before you retire, make extra mortgage payments. If it's a long time, let's say you're 30, 35, 40 years old, you'll probably be better off investing. Number eight, what could you earn if you didn't pay off your mortgage early? You figured out your interest cost in question five. That's your cost of money. Now you're going to look at how much you can make from your investments. That's your projected return. If the return on your portfolio is greater than your cost of money, that's a sign you shouldn't make extra payments on your mortgage. And finally, number nine. Will your current portfolio support your desired lifestyle? You know, when you reach that point, if you've already got enough money to pay for everything you need to keep you happy for the rest of your life, why take any more risk? Just make the extra mortgage payments, get that debt paid off, and live happily ever after. The advice we're giving here is general. We do recommend you talk with a financial planner or a CPA about your specific situation, Randy. And the bottom line is this, all else equal. From only a financial point of view, paying down your mortgage is like making any other investment. Your return is equal to the after tax cost of your mortgage, but it's a guaranteed return. If nothing else seems to be a better option, given its risk, by all means, get that mortgage paid off as soon as you can. And on our blog today, you'll find a link to an article that goes a little more in depth with our nine questions that we've asked today. And that's a big success, bigwith2gsuccess.com. It's also where we have a written summary of today's show. And thanks, Randy, for sharing your big challenge with us. Let us know if you have any more questions about our questions. All right, and let's get our big quote for the day. Big quote today comes from Walter Savage Landor, who said, "We talk on principle." That's principle with an L, E, Maryland. But we act on interest. But you shouldn't pay down your principle with an AO, unless it's in your best interest. Maryland, how'd you ever learn the difference between L, E, and AO with principle? One spanked me. That was the one I heard. The principle is your pal, and that's how I learned this one. Next time, we'll share a love story with lessons. And until then, here's to your big success. The Big Success Show at B-I-G-G Success.com. [MUSIC PLAYING] [BLANK_AUDIO]