Advantages of paying more of your mortgage while you know you won't continue to live there your whole life
"In the Netherlands specifically, there are several reasons to pay extra off on your mortgage. First, house prices have dropped significantly in the last several years.  They are rising slowly now, but it's region specific and you can still borrow more than 100% of the price of the house.  Under these conditions, if you choose to sell your house and the outstanding mortgage amount is greater than the value of your house, you are left with a gap (restschuld) to finance.  I think the rules have changed recently around this, allowing you to finance this gap with a new mortgage, but this is not a good idea.  The tax implications of this are likely to be complicated in the long run and your new house may not cover this gap for some time. Second, the less you owe on your house, the lower mortgage rates you can get.  Mortgages in the Netherlands usually fall into categories based on percentage of the auction price at a foreclosure sale (executiewaarde).  If you pay more of your mortgage off, you may qualify for a lower interest rate, possibly making refinancing interesting.  This is especially important if interest rates continue to drop but the value of your house does not increase or even decreases. Third, if you choose to keep your house and rent it out, the banks in the Netherlands have very strict rules on this if you want to do it above board.  I've read that some banks require the mortgage amount (NB not the value you may have built up in a linked savings or insurance account) to be less than 50% of the foreclosure auction price (executiewaarde).  Also, related to point 2, if you have something other than a linear or annuity mortgage, you will need to refinance to do this as the tax advantages around savings mortgages ([bank]spaarhypotheken) do not apply if it is not used as your own residence. Finally, if you choose to sell and you are in the happy position of having the value of your house be greater than the value of your mortgage (you have an overwaarde), there may still be some obstacles.  Any value you have accumulated in a linked savings or life insurance account is not available until after you sell your house.  Extra value derived purely from the difference between mortgage value and sale price may be easier to deal with. EDIT: As a final note, I've made extra payments on both a ""Spaarhypotheek"" (linked life insurance) and a ""Bankspaarhypotheek"" (linked savings account).  In one, the principal paid each month reduced and the mortgage lifetime stayed the same.  In the other, the principal paid each month stayed the same and the lifetime reduced.  In both cases, interest payments were less each month.  I would contact your mortgage provider to understand what the expected impact of extra payments will be." "I will add one thought on to this thread.  This is a financial concept called ""Net Present Value"".  In plain English, it means ""What's the best use for your money right now?"" So, let's say you have an extra €300/month which is not being spent on living expenses. If you leave that money under your pillow (or spend it on beer or fancy electronics!) instead of paying off your startersloan early, that is costing you 300*(0.04/12) per month, every month.  So €1/month, or €12/year.  This is cumulative for the life of your loan.  So not paying €300 this month will ultimately cost you €120 assuming you keep the loan open for 10 years.  If you're saying ""pay my debts or spend the money on a snappy smartphone?"" the answer is that you should pay your debts. Now, here's the important part.  Let's suppose you have a better use for the money than beer or electronics.  Let's suppose you have a mutual fund which will reliably provide you with a return of 10% a year. If you put that €300/month into a high-yield fund, and if the returns are consistent, you are STILL paying that €12/year (because you invested elsewhere and didn't pay your debts), but you are realizing profits of 300*(0.1/12)=€2.5/month on the invested money.  €2.5-1=€1.5/month, which is a net gain.  So, in some cases, paying off your debt may not be the best use of your money. There are a number of other questions involved which are related to your exposure to capital gains taxes, incentives or disincentives for holding debt, &c. &c.  These are generally country specific.  A poster above who seems to be familiar with Netherlands law did a good explanation of some of those incentives.  I'm in the US, and our incentive and disincentive system is different. TL;DR:  It depends." It's pretty simple - the less money you owe the less interest you pay.  Paying down debt  gives a guaranteed return of the interest rate of the debt. So paying off your starter loan is equivalent to a 4% return.  That's not a bad return in the current environment so it makes sense to do it unless you can find an investment which you think is likely to pay significantly better. (Note this is a general answer, not Netherlands-specific.  There may be other considerations, around tax for example, which have to be factored into the calculation). The mortgage is a debt and you pay interest on it, typically more than you can earn elsewhere (especially once taxes are taken into account.) By lowering the principal, you lower the total interest you pay. This is true whether you sell the house after 1 year, 10 years, or 100 years. In your case, prepayments made in the next few years would mean that when you sell, your mortgage principal would be lower than it otherwise would have been, and your house equity will be higher. You can therefore either move up to more house for the same monthly payment, or have a lower monthly payment for the same kind of house. Either of those are good things, right? Now is the easiest time to find a little more money, so do it if you can. Later you will have more obligations, and develop a taste for more expensive things (statistically speaking) and therefore find a few hundred a month much harder to come by. Another factor:  When you sell this house and buy the next one, the more equity you have the easier the loan process tends to be.  We rolled prior equity into this house and had a downpayment over 50%--and the lender actually apologized for a technicality I had to deal with--they perfectly well knew it was a basically zero-risk loan. The main factors you have to consider are: Could you get a better return on that money by investing it somewhere?  The investment rate should basically be more than the mortgage rate. If you find yourself suddenly in need of money (eg, loss of job) do you have enough savings to ride that out?  If not, investing the extra money in an instant access investment, even at a lower rate, may make sense as it gives you future flexibility. Do you have any other debts that are at a higher rate?  If so, pay those off first as you will get more bang for your buck.
It's doable, but there's a fair amount of risk involved. The biggest issue is that your roommates could move out. It's possible that they could have a falling out, get a job in a different city, or just move on. How difficult would it be to find another roommate? How many roommates can you lose and still afford to pay the mortgage, insurance, taxes, and all the rest of your living expenses? Even if you you retain all of your roommates until the mortgage is paid off, there's still some risk involved. If you were to lose your job, could you continue to make mortgage payments? Worst case scenario is that you could become unemployed for a time while home values in your State/City/neighborhood are crashing. Last, the position on landlord has the potential to be lucrative, but also comes with a fair amount of responsibility. It will be a drain on your time to maintain the house and to make sure you always have tenants. I know you said that your roommates are good about paying on time, but are you willing to evict a friend because they won't/can't pay rent? It's easier to ask the landlord for an extension on rent when you're friends. All that being said, I think that this idea is worth considering. My recommendation is that you consider every aspect of it, and proceed cautiously if you choose to do so. "Completely false. I recognize the impact that energy has on everyday life across the globe. Your reasoning is fundamentally flawed because you think oil or ""oil lust"" is the reason. The desire for cheaper energy is the driving factor, it just so happens that oil is the cheapest. If the roles were reversed and solar was more profitable, there would be the exact same counter movement in support of oil. You don't understand the rules of the game and that's why you're willing to throw billions of other people's dollars at the problem to change the rules to fit your desires.   And you can prove me wrong right now for calling you an uniformed ideologue by just saying, ""it's about being as efficient as possible to produce the most energy for people to live their lives. No one person or industry should have an advantage over someone else; therefore all energy subsidies should be eliminated in the interest of progress."" But you won't." The home owner does not start foreclosure, the bank decides when to foreclose.  Therefore you cannot really decide a time to foreclose if you are trying to time the decision. The process You miss payments, and the banks will send you a late notice for the missing payments.  Expect many notices. The bank will call you at home, on your cell phone and at work.  They will mail you letters regarding the missing payments. If you continue to miss payments, the bank will probably demand the loan be paid in full.  You will owe the bank the full balance of the principle, all past due interest, all past due late charges and junk fees.  The bank won't even take a normal monthly payment from you should you try to pay your regular payment again. Some law enforcement will notify you on the bank's intent to foreclose.  The bank has begun legal proceedings. Legal notices are published in the local newspaper. Soon the notices and the legal waiting period will expire.  Court proceedings happen.  The court will then allow the bank to foreclose. Notices to into the paper again about the updated status of the foreclosure. The house is sold at auction. Money from the auction is used to pay taxes owned, then mortgages, then other liens or creditors who file. Further debt for the home owner Taxes When sold, if the mortgage debt exceeds the home's fair market value, US Federal Tax rules say the selling price as the fair market value. The fair market value can still be higher than the tax basis (which I think is the value of the house at the time of original purchase plus improvements.).   If the fair market value is higher, you will own taxes on sale.  However tax rules in the US say if you have owned the home more than two years and make less than $250,000 in the transaction ($500,000 if married) you will not owe any tax.  State taxes can be different. Additionally, if the mortgage lender forgives the debt and doesn't create a deficiency, that income is taxable as well.  This is more an more common these days.  There are exceptions if the home is your primary residence. This whole process an take several months to occur, but depends on where you live.  If you continue to live in the home after the auction, the new owner must evict you from the property which is another set of legal proceedings. Your credit and ability to buy are home will be damaged for the next several years. I am not so sure on how PMI works for the banks, but I know they are getting some money back. "I encounter this response all the time when people find out I'm majoring in finance.  So much so that trying to explain to someone whose knowledge of financial professionals is limited to the tiny percentage that get featured on the front page of newspapers is pointless. Why don't you hate nuclear scientists? They created the bomb. In closing I'll leave you with a quote from a movie about the importance of risk management.   ""Jesus, Seth. Listen, if you really wanna do this with your life you have to believe you're necessary and you are. People wanna live like this in their cars and big fuckin' houses they can't even pay for, then you're necessary. The only reason that they all get to continue living like kings is cause we got our fingers on the scales in their favor. I take my hand off and then the whole world gets really fuckin' fair really fuckin' quickly and nobody actually wants that. They say they do but they don't. They want what we have to give them but they also wanna, you know, play innocent and pretend they have know idea where it came from. Well, thats more hypocrisy than I'm willing to swallow, so fuck em. Fuck normal people. You know, the funny thing is, tomorrow if all of this goes tits up they're gonna crucify us for being too reckless but if we're wrong, and everything gets back on track? Well then, the same people are gonna laugh till they piss their pants cause we're gonna all look like the biggest pussies God ever let through the door""  - Margin Call" You could walk away from your mortgage.  When you signed the mortgage you and the bank agreed that if you stopped making payments the bank would get the house.  Give them the house.  Of course this would be a huge hit to your credit score and you would probably not be able to obtain another mortgage at a decent rate for at least 7 years.  You may have trouble obtaining other financing as well (i.e. auto loans).  If you plan on moving to an apartment and don't need to finance car purchases this may be OK. "A person can finance housing expenses in one of two ways. You can pay rent to a landlord. Or you can buy a house with a mortgage. In essence, you become your own landlord. That is, insta the ""renter"" pays an amount equal to the mortgage to insta the ""landlord,"" who pays it to the bank to reduce the mortgage. Ideally, your monthly debt servicing payments (minus tax saving on interest) should approximate the rent on the house. If they are a ""lot"" more, you may have overpaid for the house and mortgage. The advantage is that your ""rent"" is applied to building up equity (by reducing the mortgage) in your house. (And mortgage payments are tax deductible to the extent of interest expense.) At the end of 30 years, or whatever the mortgage term, you have ""portable equity"" in the form a fully paid house, that you can sell to move another house in Florida, or wherever you want to retire. Sometimes, you will ""get lucky"" if the value of the house skyrockets in a short time. Then you can borrow against your appreciation. But be careful, because ""sky rockets"" (in housing and elsewhere) often fall to earth. But this does represent another way to build up equity by owning a house." The advantage of interest only mortgages is that they can increase your cashflow as you are only paying the interest and not any part of the principle. We have most of our investment loans on interest only for 10 years. When we got the loans about 6 to 7 years ago our LVR was only 60% and the property prices have increased by about 40% in that time. We also place our excess cashflow into offset accounts linked to the investment loans, so there is extra cash available in case things go bad. The disadvantage of interest only mortgages is that you are not paying off any principal for the length of the interest only period. If you are over extended this could cause problems as you need to rely totally on the price of the property going up for your equity to increase. As you are currently paying mortgage insurance leads me to believe your LVR is above 80%, so you would not have much equity available in your home. With an interest only loan this could pose you some problems. You should never try to over extend yourself, the slightest thing that goes wrong could get you into financial troubles. Always try to have some buffer to help you stay on your feet if circumstances do change for the worst. The advantage of having a mortgage rather than borrowing money in other ways is that it is cheaper because the loan is secured against the value of the property.  If you stop paying then the bank take the house and can sell it keeping what they are owed and returning any excess. If you have enough money to pay it off then you do not need the mortgage.  They normally run for 25 years.  It is a lovely day when finally you realise that you own the whole house and no longer owe anything to the bank and the charge against the house is removed and the record of it removed from the land registry.   When you sell a house with a mortgage the buyer has to check that the bank has been paid off before they accept the property.