Ramit Sethi lays out four steps before you pay extra on your mortgage: max your 401(k) match, kill high-interest debt, build a six to twelve month emergency fund, and max out a Roth IRA. Only then does extra mortgage payment make sense.
Here's a simple framework. Before you make any extra mortgage payments, ask yourself four questions. 1. Have I maxed out my 401k, especially if my employer offers a match? If not, that's free money you're leaving on the table. 2. Have I paid off any other high interest debt like credit card? 3. Do I have a solid emergency fund, ideally 6 to 12 months in case I lose my job? 4. Have I maxed out my Roth IRA which is tax free free growth for decades? If my answer to any of these is no, then I would strongly reconsider paying extra towards your mortgage. This is what I call the ladder of personal finance. You climb it in order, starting with your 401k match. Only after you've climbed all of these rungs would I consider paying extra on a low interest mortgage.
