To reach your goal of becoming debt free in 20 years, the common, conservative approach would be to apply an extra $321.41 a month to the loan for 20 years. Instead, what if you take the $321.41 a month and invest it (say at an 8.00% return) for 240 payments, in a mutual fund, tax qualified in an IRA. Those funds would accumulate to $189,317. Guess what the actual remaining loan balance would be after 20 years on the 30 year loan, when making the minimum $1,193.54 payments? The balance would be $117,885. If you take the $189,318 that you accumulated in your investment and simply pay off the remaining loan balance of $117,885, you come out $71,433 ahead in more ways than one!
Again, the common approach would be to make that $1,514.95 payment to be debt free after 240 payments or 20 years and NOT have that remaining $117,885 balance. IF you apply the extra money towards your mortgage your mortgage tax deduction is reduced more rapidly and you have less liquidity! We suggest avoiding those pitfalls and INVEST the extra money, not pay down your loan.
So do you still want to be part of the “herd” and pay extra on your loan? Or do you want to achieve your goal in a smarter way and invest your money and have an extra $71,433 in the bank when you retire debt free at the age of sixty? It’s simple math. That’s simple investing. That’s the truth!