Just paid down a big chunk of mortgage...but why does it feel wrong?

[38Chevy454]

Are you saying the mortgage was 141K - 20K = 123,845
Are you being credited with paying down the principle vs just pre-paying the mortgage payment ?

The payment of $10K included the regular payment of $1847; of which a portion of that $1847 was to pay interest and a portion of the $1847 went towards principle. So that is why the difference. The actual payment extra amount that went directly towards principle was $8153.

 

[Sunset]

Yeah, it's going to paying down the principal. Do they even make mortgages or other loans where paying extra just goes toward pre-paying the interest? That sounds like it shouldn't be legal to me. Also, what advantage would there be to simply pre-paying interest, rather than paying down the principal?

I have heard some mortgage service companies will take the pre-payment and simply count it as advance payment of the regular amount, unless told to apply it to the principle.
So I just wondered.
It never happened to me, but I watched them like a hawk and kept it simple like pay regular amount + 10K at one time, then see the remaining balance (online) go down as expected.

 

[Hamlet]

But that's not true for everyone. For me, I get an awesome, powerful, "putting it to the man" feeling when I see I have a sub 3% mortgage while the market has been soaring. And I could pay it off in a heartbeat if I wanted.

-ERD50

Ultimately, at these low mortgage rates, you are likely to come out ahead long term not paying off your mortgage. The price for that is a (probably small) increase in the risk you are taking.

This decision is going to come up for me shortly, as I just bought a new house with a big mortgage and will have a large chunk of money available when I sell the old house.

My preference would be to hang onto the money looking to invest it in stocks when I find some at rational valuations. My wife will want to pay down the new mortgage and take the guaranteed 3.5% return since we have so much already invested in the stock market.

I think we will probably go with her plan, since the mortgage is big enough that it could conceivably cause us pain in a bad deflationary environment.

Paying down the mortgage reduces tail risk but reduces your expected return.