Getting your own house is one of the most expensive investments of your entire lifetime. Since it is costly and involves a hefty loan amount, it is valid to dream of a day you will be free from monthly mortgage payments for good.
If you get your hands on an extra amount of cash, is going ahead and paying back the loan before the time a good move? Well, it may be. Here are some points to consider before you decide on paying off your mortgage debt early.
Is It Possible To Pay Off Mortgage Early?
Mortgages are more extensive than regular loans, and consequently, their payment lasts for nearly a couple of decades or even longer than that.
Therefore, paying the loan early will save a significant amount of interest. It is much better for individuals who have a fixed monthly budget to live in. It is a relief not to make a monthly mortgage payment.
The amount you pay is a collection of principal and interest, and once you hand it over to the lender, those two are split apart.
In the early days of a loan, a considerable portion of the monthly payment interests. As time passes on, the cash amount goes down to the principal instead.
This phenomenon is known as amortization. It lets the lender make a good portion of their money within the initial several years of the entire repayment plan.
Is Paying Off Mortgage A Good Option?
Simply put, if you have the capacity to pay the amount off early does not mean that you must. It is a feeling of relief to get rid of this financial burden. However, understand the pros and cons first before making your decision.
Advantages of Paying Off Mortgage Early
- The most significant advantage is saving money on interest. This happens so because you reduce the time span of mortgage payments and cut down the interest amount.
- Money is useful for the latter part of life. Since a mortgage lasts around 15 to 30 years, paying off the mortgage early would free your cash to spend on other things such as traveling.
- You may lose out on higher-interest debt if it is a student loan or credit card debt; channeling your excess cash on paying the mortgage can actually cost you. This is because of high-interest rates.
- You miss out on higher returns if you engage all your money in paying off your mortgage debt in one go. Let’s see an example; if the mortgage rate set is 3.5% and you earn an average of 6% every year, you would lose your money by utilizing extra funds for paying off the loan early.
Ask Yourself These Questions before Paying Off Your Mortgage Early
Before setting your mind on paying off the mortgage amount early, think about the following:
- Do I have enough cash amount in savings to easily bear the next 6 months’ emergency expenses?
- Have I saved enough for retirement or other financial goals set?
Final Take Out
If your answer to them is affirmative, then paying your mortgage early can be a smart move. However, do remember that few lenders charge an amount as a prepayment penalty. And if yours does, too, be sure to consider that fact too.
If you want to know more, we at Reddoor funding can help. Head to our office and learn more about your loan queries. Call to set an appointment at 832 539 1099.