Making extra payments on principal on loans < 3.0%

[Adam Huynh]

Hey y'all,

Read David Greene's Long Distance REI and wanted to consider this:

"If you continuously make extra payments toward the principal of the loan, you not only pay the principal down faster through the extra payments, but you also ensure a larger percentage of your next payment goes toward the principal.

One common way people take advantage of this phenomena is by making half of their monthly payment every two weeks as opposed to one payment a month. At first glance, this might seem silly, as it appears to be the same amount. Let me tell you, it’s not. Making a payment every two weeks is the same as making one full month every twenty-eight days. Because most months have more than twenty-eight days in them, this leads to your paying more per month.

On a thirty-year loan with a 5 percent interest rate and a balance of $250,000, you can expect to pay $233,139.46 in interest over the life of the loan if you make just the standard monthly payment with nothing going toward the principal. If you take that same loan with the same terms, but you make one half of the mortgage payment every two weeks, you end up spending $190,193.73—a savings of $42,945.73 from making the equivalent of just one extra payment a year."

I have 2 properties via househacks. Net cashflow is zero accounting for cap ex/maintenance and I don't pay for any living expenses. I've taken a lot of David's advice and want to continue invest in high equity areas where CF is neutral. I have a very good paying job and don't intend on leaving although would like to drop my W2 hours over the next 1-3 years. I am based in Austin, Tx.

My question is if it is worth it now to make extra payments every month in order to continue to build equity, or not since mortgage rates are so low?

Thanks,

Adam