Extra Payment on first property or waste of time?

[Zach Rubin]

Hello community,

The wife and I just purchased our first property that will be our primary for the first year or two on a FHA loan. We do plan on refinancing it after that time due to the ideal interest rate we are probably receiving as well as turning into a rental. My question is should we make extra payments monthly to help reduce the amount of that time or not bother because of the high rate? And just save that money for future investment/property purchases?

[Patricia Steiner]

The wealth building strategy here would be to pay-off your high-interest debt first (credit cards), followed by other installment debt - all the while saving at least "15% of income per year (including any employer contributions) is an appropriate savings level for many people; having one to one-and-a-half times your income saved for retirement by age 35 is an attainable target for someone who starts saving at age 25."  All of this should happen before accelerating the pay-off of your mortgage.  And, here's one big reason why:  your mortgage interest is tax deductible (specifically:  "Any interest that you pay on a mortgage toward a property can be deducted from your tax (up to $750,000), this also includes loans for second homes if it stays within the limits of $750,000 and any home equity loans.” Source: Forbes).  So the mortgage interest rate you think you're paying is actually much less when it is adjusted for the tax deductibility.  

It's important to know that wealthy people do things that others don't. They know that having liquidity is essential - and they don't borrow for consumer goods.  But they do borrow a lot - strategically - and are mortgage heavy.  The Federal Reserve reports that the top 1% of the population holds 4.6% of all debt - whereas the bottom 50% in the country carries 36% of all debt.  The more you know about building and preserving wealth, the path becomes very clear.  

Hope this helps...