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Pay Like the (Not So) Olden Days

Money in the bankOne of the most common pieces of mortgage advice is to make prepayments. It’s almost cliché to call it a strategy.

Yet, occasionally we find a different spin on this overfamiliar technique. This week’s Globe column describes one such case, a method of exploiting cheap rates.

Interest rates have fallen by half since 2007. Yet, few even think to make the same higher mortgage payments they would have made just five years ago. And who can blame them, if they have greater-returning uses for their income.

But for risk averse mortgagors or those seeking an effective forced savings plan, optional payment increases work.

Yes, you can potentially find better nominal returns elsewhere, but higher risk-adjusted after tax returns don’t grow on trees. What’s more, prepayments accelerate your mortgage payoff day—the day you get the peace of mind of knowing a lender has no further claim on your shelter.

More: Pay your mortgage like it’s 2007…