Skipping a payment after refinancing

November 20, 2011 

Dear Dave,

I just refinanced my home from a 30-year fixed rate to a 15-year fixed rate mortgage. The first payment won't be due for two months, but should I go ahead and make a payment or put that money toward my debt snowball?

- Avery

Dear Avery,

If it were me, I'd put that money toward paying off debt. At this point, you don't have a payment coming due, so anything you paid in would only go toward prepaying the principal. Mortgage interest is charged in arrears, which means backward. Your next payment would pay your interest. That's why your first payment isn't due.

I think deep down the heart of your question is whether or not to pay extra on your mortgage instead of putting money toward your debt snowball. The answer to that question is always no. Get rid of all your debt except the house first, which is Baby Step 2. Then, move on through the rest of the Baby Steps.

Baby Step 3 means fully funding your emergency fund with three to six months of expenses. After that, Baby Step 4 is investing 15 percent of your income into Roth IRAs and other pre-tax retirement plans. Baby Step 5, if you have kids, is college funding, and then you pay off your home early on Baby Step 6.

Once all this is done, you have the final Baby Step, and that's number seven-build wealth and give. That's when the fun really begins.

- Dave

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