Over Thanksgiving I had the opportunity to talk to my family a lot about our upcoming Mortgage commitment - fixed or variable and accelerated or standard - there are so many options! What we're stuck on right now is once everything is settled in the new house and we've paid off our credit card debt - should we put any un-allocated money we have on the mortgage or on the Escape payment.
I was originally thinking that we should go with the higher interest rate and smallest debt - the Escape. It would free up $388.62/month which we could then add to our RRSP's or Mortgage or life..or some combination.
My mom suggested that we consider putting any extra money towards the Mortgage because of the effect of compounding interest over thirty years. Making additional principal payments have the biggest impact the sooner they are made into the mortgage (the same rationale is used when contributing to RRSPs).
Have you ever had to make this decision, which way did you go and how did you decide?
Jordan just heard me talking about this post with my mom and he voted for the higher interest rate...and while that was my initial feeling to - I'm going to give my mom's idea a chance and put the math into excel.
This first chart shows the savings after three years, but does not account for the long term savings of paying off mortgage principal early on - unforutnatly, I can't figure that out so maybe you can help?