The 13th Mortgage Payment

A lot of people, concerned with racking up too much debt focus on paying off credit card and auto loan debt as well as their mortgage. While decreasing such high-interest, non-efficient credit card debt is a good idea; it may not always be in your best interest to strive for that “13th” mortgage payment.

Mortgage debt is considered “efficient” or “good” debt. This is because this debt has a tax-deduction on interest payments and was taken out on an asset that generally increases in value, especially if you end up staying in the home for a long period of time (these last few years notwithstanding). Having such debt is not a bad thing as long as you can afford the monthly payments.

However, there are several reasons for not putting that extra payment toward your mortgage principal each year. The biggest reason is that you give up access to that money in case you need it down the road. That extra payment could instead be put toward your cash reserves for potential future cash emergencies, thus eliminating a possibly higher-interest rate on monies you are borrowing because you did not have access to your own money. Or it could go toward other savings that have the potential of paying more interest than you would save by paying down the mortgage. The catch is, if you do end up using the money, you need to make a schedule for paying yourself back just as you would a bank – with the same interest – that way you can either continue to build your savings or have access to the money for additional cash needs in the future.

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One Response to The 13th Mortgage Payment

  1. David M. Tompos says:

    Good advice, and very consistent with the lessons from Dave Ramsey. Having a nice Emergency Fund (3 to 6 months of expenses) is probably more important than making that 13th mortgage payment each year.
    One strategy I use in paying down our mortgage is to round up our payment each month to the nearest $50. This allows us to pay down our principal quicker, yet isn’t preventing us from saving into our Emergency Fund.
    Great article!

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