Fast Pay Down of Mortgage

[mpeterson]

Hi all, i own a few properties and have the long term plan of having the mortgages paid off by the time i retire. Wondering if anyone has any ideas as to how to pay down a mortgage at a accellerated rate? Currently i do raise the amount i pay each month, i pay on a bi-weekly basis and also make lump sum payments once per year. Perhaps this is really all that can be done. Any sugguestions would be greatly appreciated.

 

[Sherilynn]

Some banks also allow matched payments. This enables you to double your regular payment either occasionally or for every payment automatically. On our personal mortgage we have a long amortization to keep the required payment small and keep our debt ratios down, but we double every payment so an extra $13416 is paid off every year. (This is in addition to the allowable lump sum payments.)



Another option is to have a HELOC mortgage. Here you can split the mortgage into 2 or more parts, with one being the locked-in mortgage and the other being the flexible HELOC.



Cons:

• The HELOC will often have a slightly higher interest rate
• The lump sum prepayment allowance is based on the initial balance of the locked in portion only
  
  Pros:
  
• You can pay off the HELOC as fast as you choose, so it matters less that the allowable prepayment is smaller
  The HELOC can automatically readvance so you have available credit to use again if required
  Depending on the bank, the HELOC may be split into 2 or more portions, so you can allocate HELOC interest
  Yes, these are available for rental property mortgages.

 

[invst4profit]

What is your rush to pay down the mortgage. Remember you are operating a business.



The more you pay down the mortgage the less your return on investment.

At some point in time the value of the amount of money you have invested in the property will out strip your return.

At that point in time you are losing money on a monthly bases.

You would be better off remortgaging every 5 years to pull the equity out of the property.

By maximizing the mortgage you can reinvest your cash at a higher return.



Don't think like a home owner when operating a business.

 

[mpeterson]

Interesting feedback...Greg my goal is to have the properties paid off so the rental cheques that come in are pure income for me rather than needing to go to mortgage payments. To continue to refinance to me seems that in the long run i will pay substantially more in interest payments. If i am thinking of it like a business i think it would be smart to have more money in my pocket rather than money going to the bank for interest.

 

[mortgageman]

For many investors the name of the game is to safely leverage as many properties as possible to have the largest portfolio possible (ie, $2 million, $5 million, etc) for the maximum amount of time possible to benefit from appreciation.

Your tenants pay the mortgage including the interest portion (the interest portion is tax deductible) so there's no real rush to pay those mortgages down.

You should try to pay your primary residence mortgage down as quickly as possible as that is bad debt in the sense that the interest isn't tax deductible unless equity has been used for purchasing qualifying investments.

If you follow the REIN system exit strategy, when you're ready to retire you sell a few of your properties and use the proceeds to deleverage and increase cash flow by paying down some or all of the other mortgages.

 

[Thomas Beyer]

Unclear if this is the right strategy. In a world where governments of all stripes deflate currencies I seriously question the desire to pay down cheap 3% mortgages. The goal ought to be to buy more cash-flowing assets with cheap money. Then, in time, sell a few and live off the cash flow once mortgage rates are higher a decade or two hence. Focus on the top line , not the bottom line primarily.

 

[bizaro86]

I think the decision on whether to pay down mortgages or invest more should depend significantly on the circumstances of the individual. If you have enough properties where simple mortgage pay down can get you to your Belize, why buy more? Is it really necessary to continue pursuing money forever? If you want to maximize eventual net worth, then definitely buy more at current rates. But sometimes a shorter path to your goals could go through mortgage pay down.

As to the original question, it's not complicated, take money, give it to the bank and have them apply it to the mortgage.

Regards,
Michael

 

[Sherilynn]

Accelerated paydown on rental property mortgages is not my strategy either, but with the automatically re-advancing HELOC mortgage you can have the best of both worlds: pay down the mortgage quickly and still have that money available for purchasing more properties or other investment vehicles.