You've heard that it's good to be early -- whether for work, a job interview, or going to bed. But what about prepaying your mortgage? When does it make sense?
Fewer payments and a faster payoff are appealing. "For many people it's a no-brainer to prepay . . . Essentially you're getting a guaranteed return in the form of the interest you aren't paying," says David Reiss, who teaches residential real estate finance at Brooklyn Law School. "It's hard to find an investment in today's market that gives you an equivalent risk-adjusted return."
Money you no longer put toward the mortgage can go elsewhere. Being mortgage-free in retirement helps cash flow on a fixed income, points out Leslie Tayne, a Melville attorney specializing in financial issues.
Take your monthly payment, divide it in half and make that payment every two weeks. On a typical mortgage, this could shave off almost four years, says Jason Auerbach of First Choice Lending Services in Manhattan.
Paying extra on your loan "means you can't use that money for other more important things such as contributing to a retirement account," Tayne says. If your assets are earning a higher rate of return than the interest rate on your mortgage, it doesn't make sense to pay early. Run the numbers.
Also, once the loan is paid, will you miss the tax deduction? Does your loan carry a prepayment penalty? Can you really afford to pay extra? Better know the answers to such questions, advises Jeff Tanenbaum, a broker with Halstead Property in Manhattan.