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Divide savings for college and mortgage

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Dear Dr. Don,
I have an extra $285 per month available in my budget. Would it be better to use this money for extra monthly principal payments on my mortgage? I am 52 years old with 29 years left on a 30-year mortgage. I also wonder about applying extra monthly payments toward my daughter’s college savings account. She is seven years away from college. Thanks for your advice!

— Andrea Ameliorates

Dear Andrea,
So, the question involves making “extra payments” for both the college fund and the mortgage. Although it’s hard to do, you don’t want to overfund a college savings account, especially if your daughter is an only child.

By making additional principal payments on your mortgage, you save interest expense over the remaining 29-year term of the mortgage, shortening the term at the same time.

It’s a sound financial goal to have your mortgage paid off by the time you retire. I’m guessing that you don’t plan on retiring at age 81, some 29 years down the line.

Other than the initial interest savings, I’m not sure what you gain if you pay down the mortgage only to borrow money at age 60 to fund your daughter’s college education.

Why not split the money and achieve both goals? You could decide to devote more money initially to the college savings contributions over the next few years. That would give them more time to earn a solid return. After that, you could switch to making additional principal payments on your mortgage.

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