Paying Off Your Mortgage Early

The debate on whether you should pay off your mortgage early will never be settled. For some it’s a good idea while for others it’s not. The main benefit of paying your home loan ahead of time is that you’ll be without a mortgage payment sooner. After all, thirty years is a long time to wait. Ideally you don’t want to have a mortgage payment by the time you retire.

The best way of not having a mortgage payment well into your retirement is to not have a big mortgage in the first place. So you’ll want to make a sizable down payment to get the lowest possible loan possible. You’ll also want to opt for a 15 year loan if you can afford the payments. If you’re not able to do either of those things you will be saddled with a big mortgage for the next 30 years. This can be a daunting number for some, but you can cut those years down by paying it off early.

One strategy to paying off your mortgage early is by saving money in a bank and waiting until you have enough to cover the principal. This is not the most ideal strategy. The reason for this is because while you’re saving, you’re still paying mostly interest in your monthly payments while not making a dent to the principal.

To pay your home off early the best strategy is to make extra payments to the principal every single month. For example, by making a $200 extra payment every month on a $250,000 mortgage at 5% you will shave off 7 and a half years off your mortgage.

But before you go paying down your home loan, consider if that’s really what you should be doing. Do you have other debts like credit cards and car loans? If so those carry a higher interest rate and should be paid off first. You really shouldn’t pay down your house unless you have already paid off all your other debts first. You also shouldn’t pay down your house unless you have already built up an emergency savings account and are truly financially stable.

In reality, one of the best debts you can have is a home loan. Interest rates for homes are typically lower than credit cards, personal loans or auto loans. Not only that but home loan rates are at record lows right now. You can get a home loan (or refinance) for about 4%. Sometimes you may even be able to earn a greater return on an investment than the rate charged on your home.

So before you make the decision to pay down your mortgage, consider all of your options because once you give the bank your money you can’t take it back out later. What’s worse, if you run into financial troubles in the future and miss a few payments, the bank can still foreclose on your home. It won’t matter that you’ve been paying extra into the principal every month.