While you may have heard of the financial benefits of paying off your mortgage early, there is a downside: it can make you forget other vital needs. Therefore, the priority should be paying off high-interest debt before making a dent in your mortgage. However, if you do not plan on relocating to another home for a few more years, you may find paying off your mortgage early to be a smart move. Here is an article that gives you several benefits on why you should pay up your mortgage and some tips for paying off a mortgage early.
Shortens the life of your mortgage
Making one extra payment a month can shorten your mortgage. For example, a $500 fee can shorten the loan term by almost five months. You can even pay more than the required amount. In addition, most lenders will let you set up automatic payments. If you miss a payment, your mortgage will remain outstanding for longer. The most cost-effective method is to pay 1/12 more each month. For example, if your monthly mortgage payment is $1,000, you can consider spending $1,050 and applying the extra $50 to the principal. $50 may not seem like much right now, but it can add up over time, especially in the early years of your mortgage; by the end of the year, you’ll have paid the equivalent of an additional payment.
Saves you money
A biweekly payment plan can also be a good idea. It doesn’t require any fees and will result in 13 monthly payments per year instead of the usual 12. This option is not as fun as going out for lunch, but it will make you leaner and free of your mortgage. You’ll have more money each month to invest and save. Most of all, you’ll have peace of mind once you own your home for free.
If the original loan amount was $20000, paying down 20% of the principal early would save you $8300 in interest. You’d be able to walk away from your mortgage 2.5 years ago. So, it’s worth putting some extra money aside to pay off your mortgage. However, the downside will be, the extra money could be invested in other things. Many people may be tempted to pay off their mortgage earlier, but this may not always be the most profitable decision.
Improves your quality of life
The benefits of paying off your mortgage early are many. Besides improving your financial prospects, it can also improve your quality of life during retirement. In addition, being mortgage-free also protects you from losing your home, as interest on a home loan can amount to tens of thousands of dollars over the life of the loan. To avoid these potential problems, it is best to pay off your mortgage early.
Another tip on paying off your mortgage is recasting your mortgage. Recasting a mortgage differs from refinancing since you get to keep your previous debt. The cost of recasting a mortgage is usually only a few hundred dollars. On the other hand, refinance closing expenses are often a few thousand dollars. You simply make a one-time payment to the principal, and the bank will alter your repayment schedule to reflect the new balance. As a result, the loan duration will be reduced. The fees associated with recasting are much lower than those associated with refinancing. Being debt-free will definitely improve your quality of life, especially during your retirement.
Reduces stress
Paying off a mortgage early can have many benefits. You can save money on interest, but you can also enjoy the emotional benefits of the accomplishment. If you’re thinking of paying off your mortgage early, you should consider a few things before leaping. Aside from reducing financial stress, this option can help you build your credit. Aside from reducing the overall amount you owe, paying off your mortgage early is an excellent way to boost your credit score. Your creditors view payments on your mortgage as a positive indicator of your financial health. This is important because you may be putting your money into your mortgage when you could have invested it elsewhere. This method can also allow you to become a homeowner sooner. It takes a lot of financial effort, but it can be worth it.