Increase Mortgage Principal, or Pay Off Credit Cards?

Many people wonder if they should increase their principal monthly payment on their home mortgage loan or not. The answer really depends on your individual financial situation. Can you afford to throw more money toward your principal, or is that money better allocated to high interest credit card debt, loan debt, or some other kind of either revolving credit or high APR credit?

Many times the answer is yes. How can you get ahead if you’re paying down your mortgage, but you’re not paying down those debts that are really high in interest, and by the way, not even tax deductible like mortgage interest at least is, then you are in fact not paying down the right debt.

You always have to consider that, although that mortgage interest amount stares you in the face every year when you go to do your taxes, and it’s usually an unearthly, staggering amount to most of us in relation to what we make, you still might be better off paying off other things with that money first.

For our personal situation, decided to not really accelerate my mortgage payments by adding more to the principal amount every month, until we really paid down some of the higher interest debt we had on credit cards. We decided to combine our balances on a few high interest credit cards that my husband had left over from his broke college student credit card abuser days when he used them for everything, and put them on a better low apr balance transfer credit card, and we also saved up to pay off some of the other smaller balances.

If you are in a situation though where you don’t owe any significant credit card debts or other higher interest debts, then you really should consider even putting down a little bit more principal on your mortgage every month, just so that you can have the peace of mind that you are going to pay your mortgage off years earlier.

The estimate is that if you can make one extra payment a year, or divide that one extra payment by twelve months, and add that much more to each monthly installment as an additional principal payment, you can usually take 7 years off your mortgage right off the bat. That’s pretty awesome.

And that’s definitely an incentive to start putting that extra cash on your mortgage every month, but remember the rule of only putting extra cash on if you do not have other higher interest debt that is not tax deductible first, that’s the key to truly getting ahead.