Ask the Dollar Diva By Dorothy Rosen • Bankrate.com

Pay the mortgage with the highest interest first

Dear Dollar Diva,
I have taken out two mortgages on my home. One is for $15,000 at 9.9% for 15 years, the other is for $125,000 at 7.9% for 30 years.

I am interested in making an additional mortgage payment a year on the 30-year mortgage so I can pay if off in 22 years. Would I be better off applying the additional payment to the loan with the higher interest rate, instead? Or should I split the payment between the two loans?

The Diva is happy to see you've gotten the word, and are acting on it. Make half a monthly payment every two weeks, instead of one full payment every month, and you'll end up making one extra payment per year. By doing this, you will pay off your 30 year mortgage in around 22 years, and save yourself a bundle in interest. It's a very smart strategy, as long as your lender doesn't charge you extra to do it.

Another way to pay down the mortgage faster, is to make larger monthly payments. The extra you send in should automatically be applied against the principal.

In your case, as long as there's no prepayment penalty, slap those extra bucks on the loan with the higher interest rate. If my computation is correct, you're talking about an extra $76 a month. Apply that to the 15-year loan, and you'll have that puppy paid off in half the time. Once that's paid off, you can work on paying down the 30-year mortgage early.

When should you not make extra payments on your mortgage?

Before you make extra payments on your mortgage, make sure you're contributing the maximum to your 401(k) plan, and any other tax-deferred opportunities available to you.

If you have credit cards or other loans with high interest rates, pay them off before you make extra payments on your mortgage.

And make sure you have savings for an emergency. Sucking money out of your house is a costly process, and a habit you don't want to get in to.

DOROTHY ROSEN has a master's degree in finance, with a specialization in accounting, from the Kellogg Graduate School at Northwestern University in Evanston, Ill. Rosen has more than 15 years of experience in the financial arena, serving in Illinois and Florida as a certified public accountant, financial consultant, expert witness and educator. She is owner of Dorothy Rosen, CPA, a public accounting firm that serves individuals and small businesses.