Pay Down Mortgage or Credit Card First?

I know how there can be a sense of urgency to get a mortgage paid down. Especially when you look at those mortgage interest statements at the end of every year. And also when you look at the calculations that you’d almost rather not see that show the total amount of interest you would have paid the bank that gave you the home loan in the end, after you’d paid off the mortgage, assuming you’ve kept it for thirty years and not accelerated your payments. Believe me, I feel that pain.

I do, you see, because when we bought our home (first time home buyers, mind you), we did something that I sort of regret now. This was before all the financial and economic hoopla hit the proverbial fan, so they were giving out secondary mortgages so that if you didn’t want to lay down that large chunk of money as a down payment, you could essentially get another bank to loan you that money you would have used as a down payment.

The only trick is that since it isn’t the primary mortgage, and since they just know they can get away with it because they are offering you something you clearly need because you really want to buy the house and don’t have the full down payment, they charge usually a higher interest rate on these types of mortgage loans. It can be as high as a few points higher, and that adds up to QUITE BIT OF CASHOLA in the end, trust me!

Well, every time I look at that one bill, I cringe when I see how much my payments are dropping down the principal – which is pretty much nill, so it’s very tempting to throw every extra dollar we have at that mortgage. But there are other considerations when thinking about paying off a mortgage and paying your credit card debt off first.

First of all, even the worst home mortgage loan isn’t as bad as most credit cards when it comes to interest, so the credit card will almost always win out as being the first priority to pay off over a mortgage bill.

Second, you do get some benefits to paying out the hind quarters in interest on your mortgage. At least with this interest, you get to deduct it from your yearly taxes, thereby lowering your total taxable income (I’m not a tax professional, so I don’t know how it actually works, I just know that it helps us out a lot on our end of year tax payouts).

Usually, it’s no contest when deciding between credit cards and mortgages when figuring out which to accelerate payments on. When you consider also that credit cards are just old debt, and at least with a mortgage you are owning something that will increase in value eventually, it really isn’t even a question.