If you have a fixed rate mortgage, your lender most likely provides options that will allow you to pay off your mortgage faster without being penalized. By doing so, you will be able to significantly reduce the amount of interest you have to pay, and you will be mortgage free much sooner. What follows is a quick discussion on some of the most common options.
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A lot of people get into trouble with their mortgages because they don’t really understand the options that they have, nor even how many options are available to them. There are a lot of different types of mortgages; some will pay off best given your situation, whereas others may end up bringing you a lot of trouble in the near-future.
If you want to reduce your interest costs, a great way is to concentrate on paying down your mortgage more quickly. Above and beyond making your regular mortgage payments, here are some things you can do to pay down your mortgage quickly:
Double up your payments. Most lenders offer the option to double up your mortgage payments as often as you like. That way if you have some extra cash, you can pop it onto your mortgage. Your lender may even give you flexibility with this option, allowing you to add an extra $100 to your payments from time to time as you see fit. I like this option better than permanently increasing your payment because then the ball is in your court – you can pay more when you can afford to.
There are many pros and cons of paying off your mortgage early. Many homeowners would jump at the chance to pay off their mortgage if they could, but there are often many unforeseen circumstances if they do, like increased taxes and expenses. However, if you only have a few mortgage payments left it might be worth it to get it over and done with, because of the accruing interest it can put your last mortgage payment further and further away. While the homeowners market is still better than the renters market, it is important to know where you stand before you pay off your mortgage early.
For one, you could save a lot of money. A mortgage is just a fancy banker name for a home loan. With any loan there will typically be interest rates until you can pay it back in full. This is a clever way to adjust for inflation, which is important when it comes to a mortgage, because you will be making payments over a long period of time. If you pay your mortgage off early you could be saving a few hundred thousand dollars just in interest rates alone. Usually this is only worth it when you are about 10 years away from the end of a 30-year loan.
Next, by effectively getting rid of your mortgage payments you will have a lot less to pay for in terms of living expenses. This can give you more room to pay for things like vacations and other luxuries that you otherwise couldn’t afford. Or you can be smart with the extra money and invest it in the stock market or in another property and rent it out. When it comes to having extra money, it is always about finding a way to make it work for you.
If you come by some extra cash or you are frugal in your budgeting, you can pay off your mortgage faster than the lender requires and as a result you can save money in interest charges.
Focusing on paying down your mortgage debt can be beneficial, however, you need to keep a few things in mind before paying off your mortgage:
1. First of all, if you have higher interest debt such as vehicle loans and credit cards, it makes far more sense to work towards paying down that debt first. Generally mortgage interest rates are lower than other forms of debt, so once you have paid off more expensive debt, you can work towards paying down your mortgage.
2. Secondly, you want to make sure that you have enough money kept liquid and accessible in the form of an emergency fund and once you have enough saved, then you can start focusing on paying off your mortgage.
3. Third, if you are an entrepreneur at heart, you won’t want to be putting all of your excess money into your mortgage because you will probably have other plans for your money such as for funding your latest business project.