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When to make extra mortgage payments

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Many people routinely add $100 or $200 to their mortgage payment each month. It's a good feeling to know they are closer to paying off their home or apartment. For some of them, however, it may not be the best move, financially speaking.

Those whose mortgage interest is tax-deductible, should make another choice. Their interest payments are actually reduced by the income tax deduction. For them, funding retirement accounts is a better idea, especially if the funding is tax-free. Financial planners say safe municipal bonds offer yields that are greater than extra mortgage payments would offer.

Paying down a mortgage loan IS a good idea if your mortgage interest is not tax deductible.

In 2004, if you are married filing jointly, and your total itemized deductions including mortgage interest come to $9,700 or less, you will end up taking the standard deduction instead. You receive no tax break for your mortgage interest.

You might also want to make extra principal payments if you have an adjustable-rate mortgage. If the interest rate rises by two points or more, your monthly payments will be much higher. To offset that, you may want to reduce the balance with higher payments.

If you lack the self-discipline required to invest elsewhere, you would also benefit from extra principal payments. It's easy to procrastinate when you should be investing. But you have to write that mortgage check every month anyway, so you might as well make it a little bigger.

Long Island Money & Careers Articles > When to make extra mortgage payments

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