Should I Pay Extra on My 15 Year or 30 Year Mortgage?

Seeking Advice
1

I have two mortgages:

  • 15 Year | Maturity 8/2035 (10 Years) | 2.25% Fixed | $142,000 principal remaining
  • 30 Year | Maturity 12/2051 (27 Years) | 3.125% Fixed | $563,000 principal remaining

I have $300 extra to spend monthly on additional principal payments. Should I:

  • Put all $300 towards the 30-year mortgage?
  • Split $150 towards both loans?
  • Or is there another option that makes more sense? I’ve been thinking about putting it all on the 30-year loan, but I’m unsure.

Thanks for your input!

2

Personally, with such low rates, I wouldn’t focus on paying down the mortgages right now. You could earn more by investing that money instead. Money markets are still offering rates over 4%, so you can keep your money in cash there and use it for paying down the mortgage once rates drop. If you really want to pay down a mortgage, I would suggest tackling the one with the higher interest rate.

3

@Bali
I’ve been wondering if it makes more sense to invest the $3600 a year instead… but $3600 today isn’t the same as $3600 in 5 or 10 years, right?

4

Dexter said:
@Bali
I’ve been wondering if it makes more sense to invest the $3600 a year instead… but $3600 today isn’t the same as $3600 in 5 or 10 years, right?

I’ve paid off several homes and now I’m a cash buyer. If your goal is peace of mind and being debt-free, I’d suggest paying down the principal weekly through your bank app. You could do this in addition to your regular mortgage payments.

5

Dexter said:
@Bali
I’ve been wondering if it makes more sense to invest the $3600 a year instead… but $3600 today isn’t the same as $3600 in 5 or 10 years, right?

Your investment could potentially grow faster than inflation. There are types of investments with guaranteed returns (like HYSA, money market, or CDs) that are currently paying above 4%. It doesn’t really make sense to pay extra on a 3% mortgage unless you value paying down debt more than investing the money.

6

Dexter said:
@Bali
I’ve been wondering if it makes more sense to invest the $3600 a year instead… but $3600 today isn’t the same as $3600 in 5 or 10 years, right?

If you invested $3600 five years ago in the S&P 500, it would be worth double by now. The past isn’t a perfect reflection of the future, but I’m still expecting the market to go up.

7

Dexter said:
@Bali
I’ve been wondering if it makes more sense to invest the $3600 a year instead… but $3600 today isn’t the same as $3600 in 5 or 10 years, right?

When you pay down a mortgage, you essentially get a guaranteed return equal to the interest you didn’t pay. That’s why it’s smart to pay off your highest-interest loans first. But if you can find investments that return more than 3.125%, those could be worth considering instead.

8

@Bali
It’s worth mentioning that it’s not just the interest rate, but also the term length. Interest is calculated annually on the remaining loan balance, but your principal and interest payments stay fixed. This means that as your interest payment decreases, the portion going toward principal increases. If you calculate this over time, you’d actually save more compared to a 15-year mortgage, but the difference isn’t huge. However, it’s interesting to note that time itself has value.

9

The majority of the interest is paid in the early years, especially with a 30-year mortgage. After the 15th year, your interest payments drop dramatically as more of your payment goes toward the principal. You can see this clearly on an amortization chart.

10

Neither. You can make better returns by investing that $300 in the stock market instead of paying interest. Once you’ve saved enough to pay off the mortgages completely, you can pay them off in one go and still come out ahead.