Did you opt for a mortgage with a term of 30 years? That doesn’t mean that you have to spend 30 years paying it off. While it may take a little extra effort, the benefits of paying off your mortgage early can be incredibly appealing. Is it something that you should consider?
The Benefits of Paying Off Your Mortgage Early
A mortgage is a financial tool that allows people who lack the cash to buy a house to borrow the funds needed to purchase the home and repay the loan over time (source). Most people realize that one of the advantages of using a mortgage is the ability to become a homeowner sooner, but not everyone realizes that repaying the loan sooner also offers its own advantages. What are the benefits of paying your mortgage off early?
Borrowing money isn’t free. It comes with a price tag in the form of interest. Interest is the amount the lender charges the borrower for the privilege of using their funds. Interest is generally expressed as a percentage. It’s paid over time, but it does add up. That’s why savvy borrowers make sure to polish their credit and hunt for low interest rates when seeking the right loan for their needs. However, securing a low interest rate is only one way to reduce the amount of interest that you’ll ultimately pay. Paying your home loan off early is another effective strategy for cutting this cost.
You pay interest on your mortgage’s remaining balance each month that you have the loan (source). Paying the loan off early reduces the number of monthly payments that you’ll need to make, which also reduces the number of times that interest will be assessed and charged. As a result, you’ll pay less interest if you pay the loan off sooner. How much money can you save by paying your mortgage off early? That depends on a variety of factors, including the amount borrowed, the interest rate, and the time remaining in the loan’s term when it is paid off.
If you’re like many homeowners, your monthly mortgage payment makes up a big chunk of your budget. As The Motley Fool points out, eliminating that expense by paying your loan off early means that you’ll free up a sizable amount of cash that you can use for other purposes. Some homeowners opt to invest the extra money in hopes of improving their portfolio and strengthening their financial position. Others fund improvements to their property, pay for college, launch a business, or use the extra cash for travel or entertainment. Without a monthly mortgage payment, you’ll enjoy greater financial flexibility, so you can make the choice that best suits your personal plans.
Paying off your mortgage early increases more than your financial flexibility; it also allows you to expand other horizons (source). Being tasked with making a monthly mortgage payment can make it difficult to take personal or professional chances that might lead to underemployment. Without the fear of foreclosure hanging over your head, it’s easier to take a job you love that pays a little less or open your own business without panicking about making ends meet. Eliminating mortgage debt can give you the freedom to make the decision that you really want to make instead of focusing firmly on practicality.
Peace of Mind
Stress is a common complaint in today’s fast-paced world. It can leave people feeling overwhelmed and anxious and is linked with an impressive range of health concerns. What does stress have to do with paying off your mortgage early? As Money Under 30 notes, debt can be a huge psychological burden. By paying off your mortgage sooner than you’re required to, you’ll eliminate this weight and the stress associated with it so that you can enjoy greater peace of mind.
Tips for Paying Off a Mortgage Early
How can you pay off your mortgage early? Real Simple offers several tips:
- Be sure to indicate any extra funds that you pay should be applied to the loan’s principal.
- Round up your monthly payment.
- Put any extra money like tax refunds, bonuses, or inheritances toward your mortgage.
- Follow a biweekly payment schedule to automatically make 13 monthly payments each year.
- Refinance to secure a shorter term or lower interest rate.
Would you like to learn more about the benefits of paying off your mortgage early? Are you interested in exploring refinancing and other potential strategies? Turn to the experts at PrimeLending of Springfield, Missouri. We believe that getting a home loan should be a positive experience, so we’re firmly focused on providing our clients with valuable insights, clear communication, and amazing results. Contact us today to discuss your goals.