Does the thought of repaying your mortgage for the next twenty-plus years leave you feeling a little down? Or maybe it just seems so far out of reach you don’t even think about it. Whether you’ve had your mortgage for a few months or a few years, accelerating your payments is an excellent option that can help get your mortgage fully paid off in a shorter time frame. A little extra goes a long way. Let’s explore three great reasons to accelerate your payments so that your mortgage debt is paid down faster.
You’ll Be Debt-Free That Much Faster
Its obvious, but it’s worth stating that you’ll be debt-free that much quicker if you accelerate your mortgage payoff. Every extra payment you make towards your mortgage principal builds the amount of equity you own in your home. So not only are you becoming more debt-free with each payment, but you’re also building your net worth. A good place to start: Take your monthly payment and divide it by 12. Take that number and apply it as extra principal to your regular monthly payment every month. This generally accelerates your payoff by about 4-5 years. Can’t afford to pay that little extra to principal? Get a “no cost refi” analysis to see if you can reduce your payment and free up the funds through a refinance. A no cost refi would avoid paying any closing costs expenses that you’d have to “recoup” through savings and free up a little extra monthly to give you the boost you need. There’s also “pick a term” mortgage options available where you can pick the term you want and reduce your rate at the same time. For example if you are 3 years into your 30 year mortgage you can refi into a 27 yr fixed rate and lower your rate and payment as well. We can also setup a biweekly payment plan for you as well through a 3rd party administrator regardless of the mortgage servicer you currently have.
You’ll Pay A LOT Less Interest
Another seemingly obvious statement. With most mortgages, any extra payments that you make will go straight towards your ‘principal’ balance. Getting the principal paid down faster means that you’ll end up paying less in interest than if you hadn’t. If you consider that every year you shave off of a 30-year mortgage is a full year of interest that you won’t have to pay, it adds up. Significantly. If you use the method I mentioned in the previous paragraph on a $200,000, 30 YR mortgage, it could shave off an average of 5 years off which ends up being roughly $25,000 in interest savings! HUGE reward for a small investment. Don’t let anybody tell you that having a mortgage is a good idea for the “tax write-off”. Nonsense. The deduction for your mortgage interest on taxes is does not outweigh the amount of interest your paying on the mortgage. Ever heard the saying “Stepping over dollars to pick up pennies”? Don’t be fooled by anybody who tells you otherwise. Normally it’s a financial advisor telling this when you tell them you want to withdraw some funds from the account their managing for you so you can pay off your house. It only serves their best interest. Not yours. There is no such thing as good debt. Understandably debt is a necessary evil for homes, college, cars, etc. but its still not “good” debt. It’s nice to get the deduction on mortgage when you can’t pay it off but not a reason to keep it.
You’ll Have More Financial Freedom
Finally, the faster you get your mortgage paid off, the more financial freedom you’ll have. The equity and credit you’ve built over time will also provide you with some options. You can invest in buying an investment property, or in taking out a line of credit to renovate and upgrade your current home. If the numbers make sense, you can also borrow against your home equity to invest in the financial markets (be very cautious here – only recommended for savvy investors). And the most important potential benefit of all – early retirement. If you have your mortgage paid off in X amount of years you’ll realize that retirement plans are a lot closer than you had expected. Think about it – if you can earn $3k in retirement or social security and have no mortgage payment/housing expense and your also retired neighbor earns $4k in retirement/SSI but still has a $1200 mortgage payment – who’s better off at the end of the day? Think about it. It’s essentially the same. Your neighbor earns more gross income but more is going out the door to the mortgage. You don’t.
As you can see, it’s well worth the financial investment to accelerate your mortgage repayment. If you can afford it and it won’t significantly lower your quality of life. If you have questions about a mortgage new or existing, give us a ring. We’re happy to help.