3 Great Reasons to Pay Your Mortgage Off Early
Probably the biggest reason to pay off your mortgage early is the ton of money you will save on interest costs.
The majority of us need to take out a mortgage to purchase a home and in many cases it will be the biggest loan we will ever have. This makes your mortgage one of your most important financial instruments and making decisions about it can have a major impact on your financial life.
Deciding whether or not to pay off your mortgage early, assuming you have the means, can be a big decision and there are both pros and cons. Today we are going to look at the pros of paying down your mortgage faster than scheduled or paying it off completely.
Save the Interest
Probably the biggest reason to pay off your mortgage early is the ton of money you will save on interest costs. Dig out your mortgage paperwork and have a look at the total amount of interest you will pay over the life of the loan. Once the shock has worn off, it should be crystal clear why paying off your mortgage (or even paying it down quicker) is a good financial move.
As an example, on a 30-year mortgage with a 5.25 percent interest rate you will fork up $345,000 in interest on a $350,000 mortgage, or almost the entire amount you are borrowing in interest. In your first mortgage payment, almost $1,500 of the $1,900 payment will go towards interest.
The quicker you pay down your mortgage the less interest you will pay over the course of the loan and if you find the cash to pay off the entire loan, you will save a fortune in interest payments.
Cut Out Mortgage Related Costs
Depending on the type of mortgage you have and how much of a down payment you put down, you may be paying for mortgage insurance. This cost will go away if you pay down or better yet, pay off your mortgage.
A lender usually requires mortgage insurance if you don’t have the minimum down payment of 20 percent when you purchase your home. Costs can vary but it is possible that mortgage insurance could cost hundreds of dollars a month. As you pay down your mortgage and exceed the 20 percent equity threshold, your lender can no longer require mortgage insurance, freeing up that cash.
In addition to mortgage insurance your lender will often require that you pay money into an escrow account to cover your real estate taxes and even the cost of homeowners insurance. While real estate taxes will not go away once you pay off your mortgage, you will be in control of that money, no longer having to pay into an escrow account every month.
Lose the Stress
Making a mortgage payment each month and having that kind of debt hanging over your head can be stressful, that stress will melt away when you pay off your mortgage. This can make you feel more secure, enjoy your life more, and boost self-esteem.
Being mortgage free also allows you to handle the ups and downs of the job market better. Being laid off is a lot less stressful if you don’t have a huge mortgage bill coming due each month.
Financial Freedom
Since a mortgage payment usually eats up a large portion of a homeowners monthly income, paying off your mortgage frees up a substantial amount of money. This cash can be socked away for retirement, college or other major expenses that could crop up.
If you are retired and the kids are out of college that extra money could be used for travel, an RV or just plain fun. Regardless of what you use the money for, not paying it to a mortgage lender is always a bonus.