Pay off your mortgage early to stay out of debt – Steps to take

Now that you’re done with signing all the paperwork and you’ve become a proud owner of a well-furnished home, you should be thinking of ways in which you can pay off your mortgage early so as to stay out of secured debt. It is a terrific feeling to own a home that is clear and free but this might not be the best way to use up your dollars. If you wish to stay ahead of your mortgage payments, there are several points that you need to take into account. What are they? Should you start making extra payments towards your loan? If you decide to pay more towards the loan, here are few things that you should take into account.

Paying off your mortgage debt early – Are there any advantages?

As long as prioritizing your debt is concerned, mortgages are always towards the bottom of the list. There are many for whom this advice might seem contradictory as home mortgage loans are perhaps the biggest debt that you can carry. So, it is important for you to know the advantages and disadvantages of getting rid of mortgage debt and the few strategies that are involved.

The benefits of paying off a home loan before the stipulated time period is that you can pay off less interest than what you owe. For instance, in case you owe $150,000 on a 30 year fixed rate home loan at 5%, the monthly payment will be around $800. In case you keep the home loan till 30 years, you will pay a total amount of $140,000 in added interest. If you have this loan for 3 decades, the cost of the property will actually double. But in case you receive $20,000 windfall and use that amount to pay off your mortgage during the 4th year, you will pay off the loan in about 23 years rather than waiting till 30. The interest rate will be curtailed from $140,000 to $98,000 and you can save around $42,000 throughout the term of the loan.

Are there any pitfalls of paying off mortgage early?

Nevertheless, the pitfalls of repaying your mortgage way before time come in when you could use your money in a better way. Mortgage debt is rather cheap debt and they even come with tax perks which can make them cost much less. At the present moment, the rate on a 30 year fixed rate mortgage is something above 3.5%. As you send those extra dollars towards paying down your home loan debt, it gets tied to your property. In case you lose your job suddenly, you won’t get a refund of that money from your company.

Apart from this, you could even be losing the opportunity to invest those extra dollars for better returns which are bigger than the after-tax rate that you would pay on your home loan. Although getting out of any kind of debt is extremely good for your finances, paying it off in a systematic order is even more necessary.

 

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