One reason not to prepay the mortgage

[ironmaiden]

I had a friend who said to always remember that "you can't eat the house". So prepaying the mortgage at the expense of a fat emergency fund wasn't a good use of funds according to her. If things went wrong (medical, job loss etc.) the money in the bank buys the food and pays the bills including the mortgage. The mortgage company doesn't care that you used to prepay - they don't count that money towards "future" months paid.

Just something to keep in mind.

[Jellybeanz]

That's a good point ironmaiden. I've debated this often, but I always come back to your friends idea. I'be been trying to comprimise a little and pay the equivilent of one extra note per year on the mortgage,since the people who did the financing told us that would shave a lot of time off of it.

But there have been months when it was either pay extra on the mortgage or put some funds back into our still too small or dwindling because something broke EF. I choose EF when that happens.

[pammy]

I do plan on paying off the mortgage early, but only when I have a full EF in place to equal at least 3 months or more living expenses. Just thinking how much easier it would be to pay living expenses without a mortgage payment is something did happen. This way, both is covered, big EF and paying off mortgage early. (Not to mention all the interest I'd be saving paying it off 20 years early.)

[canadian gardener]

After a reasonable emergency fund is built up, it's a bit of both really.

You can renogotiate your mtg to lower the payments and stretch them out further over a longer period if you have to, although in some circumstances that might be difficult.

Each family is different, and needs to assess their risk vs benefit ratio for themselves.

I know that too much in our EF would get spent, so for us, it's good to throw it into the debt hole, and keep it out of harms way so to speak.

but then our kids are grown and gone and self supporting now, so that is a very different position from 2 years ago with 2 kids still in university.

[lilk]

Build up an emergency fund is very wise, and that should be the first goal. When you have enough set aside in your EF, I believe it is wiser to put the money toward your mortgage. If you pay just one payment extra a year ( just divide your mortgage by 12 and that will give you the amount you need to add to the principal on your mortgage) on a 30 year mortgage it will knock off 7 years!! (I think it 7)Even if you can't put aside that much anything that you can spare will get it paid off earlier. Go to www.bankrate.com and type in the amount you can put in monthly or yearly and it will calculate when your mortgage will be paid off.
If you get any extra money, tax refund, b-day money anything just take a certian amount if not all of it and apply it to your mortgage.

[peanut]

Try to convince my dh of this! He insists we pay out the mortgage first. We've been married 25 years and just started an EF *again* last year. I get so frustrated. He thinks an EF is for spending. Every time it gets built up we either have to spend on a car or the house. Well, we don't have to, but he thinks we do. I am so stressed out without an EF. He just doesn't seem to get it!

I go for the EF first, and then the mortgage too. But, if I had it to do over again, I'd have an EF before buying the house, and wouldn't even think of using the money for purchasing the house, which is what dh convinced me to do.

[PrairieRose]

The EF is very important and as someone who has no mortgage anymore (paid off 11 yrs. early) that it is indeed a GOOD thing (don't every let anyone else tell you differently!).