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 mortgages early.

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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