Should You Make Extra Mortgage Payments to Build Equity?

Here’s a question that a reader recently posed to me:

“I am planning to put my home on the market in about one year. I have equity built up that would allow for a down payment on another home, but it’s tight. The amount I’d have for a down payment depends on whether my house sells for close to its value. Currently houses sold in my neighborhood have been moving slowly and dropping in price. Would it make sense for me to begin paying extra to my monthly mortgage payments in order to build equity and walk away from a sale with more money?”

This is a good question. Often financial “experts” write that you should pay more on your mortgage. Usually, they are coming at it from the perspective of reducing debt. However, in the question above this person doesn’t seem concerned about debt. They understand that mortgage payments are split between interest and principal. 

Paying more each month could help build equity, but is it a good idea? Well, I’m no expert so I’ve consulted someone who is…

Leslie Larson, home loan consultant, for Coors Credit Union says this,

“I would put the money in a savings account instead of paying equity down due to you may still walk away with very little money from sale and be out the extra money you put toward principal.”

Leslie is correct.

Selling your home is always a bit of gamble. You hope to sell for a certain amount, but then the bargaining starts and you’re never really sure where you’ll end up.

Putting the extra money into a secure, guaranteed savings vehicle like a money market account is a much surer bet.


Post a Comment

Required fields are marked *


%d bloggers like this: