What are the pros and cons of adding $100 a month to your fixed rate mortgage payment?

Weighing the Pros and Cons of Adding $100 to Your Fixed Rate Mortgage Payment

Adding an extra $100 per month to a fixed rate mortgage payment offers both potential benefits and trade-offs. Here’s a closer look at the pros and cons.

Pros:

• Accelerated Payoff: The additional $100 monthly payment significantly reduces the time it takes to pay off the mortgage. This can free up financial flexibility sooner and potentially save thousands of dollars in interest over the long term.

• Equity Building: As the loan principal is paid down faster, the homeowner accumulates equity in the property more quickly. This build-up of equity can enhance financial stability and increase the value of the investment.

• Lower Interest Payments: With a shorter loan term, the total amount of interest paid on the mortgage is reduced. This can save a substantial sum over the life of the loan.

Cons:

• Reduced Potential Returns from Alternative Investments: The $100 monthly payment that is added to the mortgage could instead be invested in higher-yield investments or used to build an emergency fund. These alternative investments may have the potential to generate greater returns than the savings from the accelerated mortgage payoff.

• Increased Monthly Expense: Adding $100 to the mortgage payment increases the monthly financial burden on the homeowner. This may require adjustments to other expenses or reduce the amount of funds available for savings or discretionary spending.

• Opportunity Cost: The extra $100 monthly payment may have other potential uses, such as for retirement savings, education, or home repairs. By directing it towards the mortgage, other goals may need to be postponed or scaled back.

Considerations:

The decision of whether or not to add $100 to a mortgage payment should be made carefully, considering individual financial goals and circumstances. Factors to consider include:

• The interest rate on the mortgage
• The overall debt-to-income ratio
• Alternative investment options
• Expected returns on alternative investments
• Financial goals and priorities

It’s important to seek professional advice from a financial planner or mortgage professional if needed to assess the potential impact of this decision before making any changes to a mortgage payment plan.