Benefits of Paying off Your Mortgage Early
Purchasing a house is a significant investment that most people make in their lifetime. It is perhaps the most significant debt that most people will take on.
In the United States, the average mortgage debt in 2019 stood at $187,000. Paying a mortgage over 30 years adds up to a significant amount of money that you will pay in interest.
Fortunately, there is an option to pay off your mortgage faster than the agreed period. Paying off your mortgage early can save you money in the long run, and there are many benefits that come with doing it.
Benefits of Paying off Mortgage Early
1. Save Money on Interest
When you pay off your mortgage earlier than the agreed period, you save money on interest payments.
The total amount of money paid over the life of the loan can be a significant percentage higher than the initial principal loan amount. Paying off the mortgage early reduces the duration of the loan and, as a result, reduces the interest fees levied on the mortgage.
2. Reduce Debt
The primary benefit of paying off your mortgage early is to reduce your debt.
Being debt-free offers you more financial flexibility, and you can start focusing on other investments that can help you achieve your other financial goals. It also means that you will own your house outright, giving you a sense of financial security.
3. Increase Cash Flow
Paying off your mortgage early can increase your cash flow by eliminating the mortgage payments that you would have otherwise forwarded to the lender.
With the mortgage payments out of the picture, you can start focusing on other financial goals or investments. The more money you have available, the more options you have at your disposal.
4. Peace of Mind
Paying off your mortgage early gives you peace of mind, knowing that you no longer have to make mortgage payments.
It gives you a sense of financial freedom and security, knowing that you own your home outright. It can also reduce your stress levels, knowing that you are no longer in debt.
Considering Paying Off Your Mortgage Early
Before you decide to pay off your mortgage early, there are several factors that you should consider. These include:
1.
Prepayment Penalties and Federal Laws
Before you decide to pay off your mortgage early, you should check whether there are any prepayment penalties attached to your loan. Some mortgages have prepayment penalties for early payments.
Ensure that you are aware of such penalties before making any payments. Additionally, federal laws govern the terms and conditions of mortgages.
Some of these laws may affect your decision to pay off your mortgage early. Ensure that you are aware of any federal laws that may apply to your mortgage.
2. Applying Extra Payments Towards the Principal Balance
When paying off your mortgage early, ensure that the extra payments you make are applied towards reducing the principal balance.
Paying only towards the interest may not reduce your overall debt load. Reducing the principal balance should be one of your primary goals.
3. Prioritizing Debt and Financial Goals
Paying off your mortgage early may not be the best financial move for everyone.
Some individuals may have other debts or loans that carry higher interest rates. In such cases, it may be more beneficial to pay off those higher-interest loans first before focusing on the mortgage.
Ensure that you prioritize your debts based on the interest rates and their impact on your credit score.
Conclusion
In conclusion, paying off your mortgage early has many advantages that can make it a desirable financial move. However, it is essential to check the terms of your mortgage and be aware of any prepayment penalties before you decide to make early payments.
Ensure that you prioritize your debts based on interest rates and focus on reducing the principal balance of the mortgage. Ultimately, the decision to pay off your mortgage early depends on your financial goals and circumstances.
How to Pay Off Your Mortgage Fast – 7 Top Tips
Paying off your mortgage early offers numerous benefits as we mentioned earlier. However, paying off your mortgage faster requires a lot of dedication, hard work, and discipline.
Nevertheless, there are several ways to pay off your mortgage quickly, and we’ll look at seven top tips that can guide you toward meeting your mortgage-payoff goal faster. 1.
Making Additional Payments and Biweekly Payments
Making additional payments towards your mortgage balance can help reduce the interest levied on the loan, as well as the principal balance. Moreover, making biweekly payments can significantly reduce your debt load.
Instead of making monthly payments, you can switch to making biweekly payments, which means that you’ll make a total of 13 payments instead of 12 in a year. As a result, this helps you to pay your mortgage faster.
Making additional payments may require cutting back on discretionary spending or creating a personal budget to find hidden savings. 2.
Saving for a Significant Down Payment
Saving for a larger down payment can reduce the total mortgage amount, making it easier to pay off the mortgage quickly. The larger the down payment, the smaller your monthly mortgage payment is, which means that you can put more money towards the principal balance.
Thus, it is essential to save for a significant down payment before taking out a mortgage. 3.
Staying Under Budget
Staying under budget helps to increase the amount of money that you can put towards your mortgage payments. It is essential to develop a budget plan that factors in everything from expenses and income to an emergency fund.
This budgeting plan will help you avoid overspending, set financial goals, and save for your mortgage payments. 4.
House-Hacking
House-hacking refers to owning a house, then renting out a portion or room to earn extra income that goes towards mortgage payments. By renting out a room or portion of your home, you can generate extra income and apply it towards your mortgage payments.
It is essential to check with local regulations before renting out a section or room in your home. 5.
Automating Mortgage Payments
Automatic mortgage payments ensure that your mortgage is paid on time, and it also prevents missing payments, which can lead to late payment fees and lower credit scores. Moreover, automating your mortgage payments ensures that extra payments are scheduled and applied towards the principal balance.
6. Rounding Up Payments
Rounding up your payments is one of the easiest and simplest ways to pay off your mortgage early.
If your mortgage payment is $1,005 per month, rounding up to $1,100 every month means that you will be paying $95 extra every month, which adds up to a significant amount over time and can help you reduce your mortgage balance sooner. 7.
Use Extra Income for Additional Payments
Using any extra income such as tax refunds, bonuses, or inheritance to make additional payments towards your mortgage can help you pay off the mortgage early. It is essential to ensure that the extra payments are applied towards the principal balance to maximize the benefits.
Refinancing Your Mortgage
Refinancing is another option to pay off your mortgage quickly. It involves taking out a new mortgage with better terms to replace the current one.
The benefits of refinancing include:
1. Refinancing Into a Shorter-Term Loan
Refinancing into a shorter-term loan means that you will make larger payments, pay less interest, and ultimately, pay off your mortgage faster.
2. Refinancing into a Lower Interest Rate
Refinancing into a lower interest rate means that you can save thousands of dollars in interest charges, which subsequently reduces your monthly payments and helps you to pay off your mortgage faster.
3. Dropping Private Mortgage Insurance
If you refinance after your home equity has increased, you may be qualified to drop the PMI, which can save you money in the long run.
Conclusion
In conclusion, paying off your mortgage early requires commitment, discipline, and a variety of strategies, including making additional payments and biweekly payments, saving for a significant down payment, staying under budget and house-hacking. Also, automatizing mortgage payments, rounding up payments, and using extra income for additional payments can speed up the process.
Refinancing can also be an excellent way of paying off your mortgage fast. By refinancing into a shorter-term loan, lower interest rate, and by dropping PMI, you can save thousands of dollars over the life of your mortgage, making it easier to pay off your mortgage sooner.
In conclusion, paying off your mortgage early has many benefits, including saving money on interest, reducing debt, and increasing cash flow. To pay off your mortgage faster, you can start by making additional payments, saving for a significant down payment, staying under budget, house-hacking, automating mortgage payments, rounding up payments, and using extra income for additional payments.
Refinancing your mortgage can also provide you with better terms, including shorter-term loans, lower interest rates, and dropping Private Mortgage Insurance. It is crucial to prioritize your debts and understand your mortgage’s terms and federal laws before making early payments.
By following these tips, you can achieve your financial goals and enjoy peace of mind.