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Just the thought of having to pay on a mortgage for three decades can leave a sinking feeling in the pit of your stomach or restless sleep. Fortunately, there’s away to get relief. You could pay your mortgage principal off early.
Paying your mortgage principal off early is smart because most banks stack your interest onto early or upfront mortgage payments. It’s similar to how credit card companies and college student loan lenders set up your payments so that they recoup much of the interest early.
Start chipping away at mortgage payments
To reduce the amount of total interest that you pay your mortgage lender, consider paying more toward your principal. To achieve this, you could:
- Get a low interest rate mortgage, preferably a fixed interest rate.
- Refinance your existing mortgage. If you have a 30-year mortgage, consider getting a 20 year mortgage. A downside to refinancing is that your monthly payments will increase, in part because you’ll pay closing costs again. Use a mortgage calculator to determine what your new monthly payments will be before you take this route. Confirm the payments with your lender before you ink a new contract. Make sure that you can regularly make the payments on time even if your or someone you co-signed the mortgage with gets laid off.
- Submit your mortgage payment before the due date if you have a simple interest mortgage. With a simple interest mortgage, interest builds over the course of a month. Sending in a mortgage payment before the due date could save you from paying additional interest. As a tip, this step also works with paying down credit card balances that are on a simple interest plan.
- Avoid late payments. Not having to pay late fees and fines is an all-around advantage. Submit too many late payments and your lender could raise your interest rates. Of course, submitting late payments also impacts your credit score.
- Put money that you earn freelancing, contracting or working overtime toward your principal.
- Rent out a portion of your home to generate extra income. Use this money to pay your mortgage off early.
Paying your principal down early is a great way to start living mortgage free. But, the early payoff doesn’t suit everyone. Consider your lifestyle. If your children will be attending college within three years or less, you may want to postpone paying more toward your mortgage principal and simply continue making your minimum mortgage payments. Other reasons that you may want to wait to increase your mortgage payments include caring for aging parents, job uncertainty and exceptionally low interest rates.
It can make better financial sense to invest in an IRA to grow your wealth if your mortgage interest rates are exceptionally low. On the other hand, paying your mortgage off early can position you to walk away with a larger profit should you sell your home. Paying your mortgage off early also gives you more financial freedom to enjoy travel, invest in art and enjoy more life experiences that you appreciate. And it’s a great way to reduce stress and enjoy a good night of sleep.
This Single-Family in North Attleboro, MA recently sold for $380,000.
This is a Cape style home and features 9 total rooms, 2 full baths, 4 bedrooms, 5.27 acres, and was sold by
Cedar Hill Realty
This Single-Family in Attleboro, MA recently sold for $300,000.
This is a Raised Ranch style home and features 6 total rooms, 2 full baths, 1 half bath, 3 bedrooms, 0.37 acres, and was sold by
Cedar Hill Realty