Whether you’re buying your first home or have owned several houses over the years, you’ve heard of the 30-year fixed rate mortgage. Many people choose the traditional, 30-year loan for the financial flexibility it provides.. Like most things in life, there are pros and cons.
A Fixed Rate 30 Year Mortgage…
✓ Offers a lower payment amount than similar loans with shorter periods, allowing other income to go toward necessities, retirement accounts, college savings, etc.
✓ Requires more interest in the long run in exchange for the lower payments over time.
✓ Provides the opportunity to own more property than a 15-year mortgage would allow due to the lower payments.
Whatever the reason you chose a 30-year mortgage loan, it may someday occur to you to consider paying off the loan early.
So, the short answer is yes. You can pay off the loan early. However…
Consider these two questions:
- Should you pay off the loan early?
- If the answer to the first question is yes, what is the best way to do that?
The answers to these questions depend on the reasons behind your payoff decision. Your highest priority could be one or more of the following.
- Do you want to be debt-free?
- Are you looking to save money on interest?
- Do you need your income for other needs?
- Do you want to reduce your monthly expenses?
Once you understand your financial motives, you will be able to make the best choice for you.
Should I pay off the loan early?
First of all, congratulations for even reaching the point of considering paying off a loan early. That’s an accomplishment in itself!
Many people who pay off their mortgages early are motivated by the peace of mind that comes with lowering debt, and saving thousands of dollars of interest payments.
Before you take action:
Find out if there is a prepayment penalty on the mortgage.
A prepayment penalty is a rare circumstance — but it is possible.
Consider any other debt first.
Should your money pay off something more time-sensitive first or another loan that has a higher interest rate?
Remember your other financial goals.
Do you need to put money toward your retirement savings, emergency funds, college savings account, etc.?
Consider whether your extra payment amount would serve you better elsewhere.
Sometimes the potential for earnings in another opportunity exceeds or offsets interest payments.
Find out how long you have left to pay off the loan.
See if the interest amounts you save would be worth lowering your monthly usable cashflow.
It’s a good idea to evaluate your current financial situation, as well as what you want your future to look like, before making any decisions.
What are some smart ways to pay off a mortgage early?
Once you have determined that it would be wise to pay off your mortgage, there are multiple ways to do so and become free of housing debt!
It is also good to remember that paying off a mortgage early doesn’t mean you have to pay it off all at once or immediately.
Taking baby steps toward a goal is often better than taking a giant, unsteady leap! It’s vital to choose what works best for you.
Here are some options you might want to consider:
Make extra monthly payments.
Extra monthly payments are the baby steps that can get you to your goal!
If most of the value of your latest monthly payments go to principal, timing your extra payments is less impactful; you’ve made it past the maximum opportunity to save the most on interest.
However, if most of the value of your latest monthly payments go to interest, we’d recommend waiting toward the end of the month — as this will reduce your interest payment a little on your next pay period. This method takes patience, but your overall savings will build up to a large amount over time!
Make an extra annual payment.
Although this won’t make your payoff date come as quickly as making monthly payments, every little bit counts! And, the advise to make the payment toward the end of a month still stands.
Put bonuses and unexpected income toward your loan.
Occasionally, you’ll receive extra during the holidays or through a special turn of events. Why not invest in yourself and your financial situation by putting it toward your mortgage? Your future self will thank you!
Refinance the loan with a shorter-term mortgage.
Shorter term loans typically come with lower interest rates. If this is a solution you would like to explore, let’s see if we can come up with a creative option that meets your needs. Contact your local Benchmark branch to discuss your options.
Pay off the mortgage completely — evaluate your financial position with a financial planner or loan officer.
Benchmark would welcome the opportunity to talk with you about this. We want you to make the best decision possible for you and your financial goals! Contact your local Benchmark branch to learn more.
Ultimately, everyone’s situation is unique, which means everyone’s method to a mortgage payoff will be different. But with some hard work and financial strategy, it is possible! We’d love to help you move toward better financial well-being overall.
At Benchmark, we are committed to helping you with home mortgage loan needs and decisions that set you up for future success. To learn more, contact your local Benchmark branchcontact us todaycall me or contact me today. We would be honored to provide you with our famous, excellent service!