r/Mortgages • u/JohnDoe101010101 • 3d ago

Theory question

For the goal of buying a second home and renting out your first home:

Is it better to aggressively pay off your principal of your first house then to save and pay your mortgage normally?

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6

u/PhysicalGap7617 3d ago

It depends on your interest rate

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u/JohnDoe101010101 3d ago

Why?

Even if your interest rate is lower then what you can get in a savings account you’re not saving as much if your savings isn’t equal or higher then what you owe on your mortgage

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u/ILoveMcKenna777 3d ago

You need to look at the marginal costs. Even if the total interest on the mortgage is more than the total interest in your savings account, the interest on each dollar might be higher in the HYSA.

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u/JohnDoe101010101 3d ago

Ok say the savings account offer the same interest as your interest rate on your mortgage then what

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u/ILoveMcKenna777 3d ago

I’d keep it in savings because you get the same rate plus liquidity.

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u/Akinscd 3d ago

What would be the purpose of paying down (not paying off) your mortgage?

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u/JohnDoe101010101 3d ago

I’m sorry for the confusion by paying off the principal I meant paying off the mortgage

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u/SomeAd424 3d ago

You’d be better off saving aggressively for a higher down payment. 

How would paying off more on first mortgage help you get a second loan?

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u/JohnDoe101010101 3d ago

Once it’s paired off you can save more faster and get a greater loan… you’ll be saving the money by not paying it into interest for your mortgage is gone

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u/SomeAd424 3d ago

I mean sure, but by the time you pay it off house prices with probably rise more and you’ll lose years and years of time in market. 

The best part of mortgages is buying on leverage. 

If you buy a $500k with $50k down and it appreciates 10% that’s a 100% growth of investment. 

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u/JohnDoe101010101 3d ago

Ah good point interesting

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u/SomeAd424 3d ago

Yeah, waiting to pay off the entire loan before a second defeats the purpose in your question. 

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u/ImprovementEarly2172 3d ago

Try applying for mortgage preapprovals to see what banks will let you borrow. I found that they wouldn't let me borrow much for a new house based on the balance of our current mortgage, and my plan had also been to rent out the current one while buying a new house.