Do you want to pay off the mortgage on your home faster? Are you at the beginning of a thirty-year mortgage or getting closer to the end? Do you have a great interest rate or is it higher than you would like it to be? Do you have other higher interest debts like credit cards? Is there a tax consequence to paying your mortgage debt off early? These are some of the questions that may have to be considered before you decide whether it is a good idea to pay off your mortgage early. However, paying your home off early is always an excellent way to build equity in your home.
Divide your monthly mortgage payment by 12 (do not include the property tax & insurance escrow) and add the amount to your monthly payment. Check to make sure your mortgage company puts this amount toward your interest. You will be making one extra payment each year.
Pay half of your mortgage amount every two weeks. This will also give you one extra mortgage payment each year. If you are not able to pay that much – anything you add on a regular schedule will lower your balance. You can also set up bi-weekly payments with most lenders. However, they will most likely charge you a set-up fee.
Refinance from a 30-year term mortgage to 15 years. The interest rates are lower for a 15-year and the term is shorter. You will then pay less in interest and build equity faster. Depending on what you owe, you may be able to pay about the same monthly payment amount as you were on your 30-year mortgage and still pay it off sooner.
Refinance your mortgage to a lower rate. If you obtained your mortgage when the interest rates were higher or when your credit was not quite as good, this may be a good time to refinance.
Use Your Tax Refund. Take your tax refund every year and make one lump-sum payment toward your mortgage. You’ll never miss it!
There are some reasons why it may not be the right time for you to pay off your mortgage. Do you have credit card debt with a higher interest rate than your mortgage rate? Then it may be a good idea to pay off those debts first. There are also some cases where it may be better to invest the extra funds for a higher return on your money if your mortgage interest rate is very, very low. There may also be a tax benefit to consider if investing in a retirement fund.
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