Why You Should Prepay a Mortgage
and How to Do It
Think about it… debt free.
Sounds like quite a pipe dream, doesn't it? But it doesn't
have to be. Despite current mortgage rates, dreaming of being
debt and mortgage free can become a reality with a little bit
of education, a lot of determination and some sacrifice, and a
thorough knowledge of your financial status. As a matter of
fact, more lenders are encouraging people to pay off their
A 2000 study showed that home debt and current mortgage rates
in the United States has increased. Still if you want to be
mortgage free and still want to enjoy your later years with
any kind of financial security, how are you going to do that
with a thirty-year mortgage hanging over your head? A growing
trend today is to shy away from those decade long mortgages
and an attempt to pay off that house in ten years, or even
less than five years. Why are people opting to pay off their
mortgage so fast? Financial freedom.
Because of the trend and demand from consumers, few lending
and mortgage companies these days charge prepayment fees or
penalties. Even the ones that still use them in their
contracts limit them to two to three year early prepayment
stipulations. This is because lenders want their money back as
quickly as possible now also because it increases the strength
of their own portfolios.
It's a general fact that by paying an extra $100 on your
monthly mortgage payment will take six years off the life of
your loan duration. Of course, the actual number of years you
knock off the life of your mortgage will depend on your
interest rate, but that's an average for a mortgage of about 8
percent interest. The general argument against paying off your
house early is that you won't be able to write the interest
off on your yearly taxes any longer. Who cares? You either pay
about $1 in mortgage interest or .31 cents in taxes. Take your
pick. In addition, many people don't stay in one house for the
duration of the mortgage, and move every ten to twelve years.
Or else they refinance for lower monthly payments, knowing
they're not going to stay in the house long enough to pay it
off anyway. But why live with a mortgage hanging over your
head for the rest of your natural life?
Depending on the amount of down payment you put on your house,
the current mortgage rates and interest rate and your
financial situation, by making extra payments of $50-200 a
month, you can knock years and thousands and thousands of
dollars off on the life of your loan. Some people spend that
on fast food or eating out every month, or on clothes, shoes,
entertainment or travel. What's more important? That Gucci
handbag or being able to live mortgage free? Think about the
freedom that comes with no mortgage! Think about the extra
money you'll have in your bank account every month, the
possibility of travel, reduced stress, and not having to worry
about retirement and how you're going to make ends meet.
No one said it is going to be easy, but get out the calculator
and figure how much extra money you can spare every month.
Even $10 extra a month will make a difference when it comes to
prepaying your mortgage. The key is to do so every month.
Living mortgage free is within the grasp of everyone who is
able to purchase a home; it's just a matter of determining
what you can live without, what you want and how badly you
want it. Whether you pay off your current mortgage rates in
less than five years or twenty-five, the current mortgage
rates will have to be paid anyway. By paying early, think of
the financial freedom and the years to truly enjoy that
freedom you'll experience by paying your mortgage early.
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