Why Make an Extra Mortgage Payment?
Many of us pay more than the minimum required on our credit card bills every month, saving us money by cutting our interest payments. But what about paying down a home loan? Is that even a possibility?
The answer is almost always YES. If you’re interested in paying down your mortgage faster, saving thousands over the life of the loan, you can make just one extra payment per year — or even just one extra payment once. You’ll be surprised at how much you can save!
Making a Difference
How much difference can one or two extra payments make? Say you have a mortgage for $210,000. Your interest rate is 4% and your monthly payments are about $1,003. If you make just one extra payment of $1,000 on your loan, just once, you’ll pay off your loan up to three months earlier, saving you three months’ worth of interest.
Now here’s a more exciting example. Using the same loan parameters above, if you add $50 to every monthly payment, you’ll pay off your loan nearly two years ahead of schedule. Take a look at your loan statement; how much interest will you save now?
Is This the Right Choice for You?
Paying off a home mortgage loan may not be the best choice for everyone. It probably makes more sense to pay off loans with higher interest rates than your mortgage, such as credit cards and car loans, first. And remember, if you’re sending extra money to your mortgage lender, you’re not using it to make investments or in other ways that can benefit your financial bottom line.
On the plus side, the government currently allows homeowners to write off mortgage interest payments on their taxes.* If you are seeing significant savings from this credit on your yearly tax returns, you may not want to pay down your home loan right now.
A word of caution: Be sure you know whether your loan carries a prepayment penalty. Some loans have a cap on how much you can pay down your loan each year, and penalties can be in the thousands of dollars.
Making a Decision
Paying down your mortgage is not a decision to be taken lightly. It’s important to review all your debts and the interest you’re currently paying. Consulting a financial planner or accountant can ensure that lowering this debt will benefit your financial health. If you’re contemplating paying down your loan early, please contact me so I can help you review your options, recommend a local financial expert if you need one, and provide any assistance so that you’re able to make the best decisions for your personal financial health. I look forward to helping you save some money!