OWNING a home is one of the biggest investments one can make.
It can also strap you down with the responsibility of a monthly mortgage payment, but a little extra a month can financially-free you down the line.
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Paying a mortgage early will increase cash flow come retirement
As of 2020, approximately 44% of US consumers have a mortgage, according to a recent research by Experian.
There are several reasons to consider paying off a mortgage early.
It can save you thousands of dollars in interest.
The extra money gives you more opportunity to feel debt free.
The increase in cash flow will help with retirement.
The interest rate you secure on your loan will depend several factors, including heavily on your credit score.
There is no one standard rate.
On average, interest rates for a 30-year fixed mortgage have ranged from 3.5% at the beginning of 2022, all the way up to 4.47% on March 9, according to TheBalance.com.
Mortgage lenders need to make money and they do so by charging borrowers interest.
That interest will turn what you thought you paid for your home into an even more expensive investment.
For example, if you bought a $250,000 home and placed a 20% down payment of $50,000, you would have a mortgage of $200,000.
A $200,000 loan, based on a 30-year fixed mortgage with a 4.5% interest rate, will result in approximately an added $164,813 interest, based on mortgagecalulator.org.
At the end of your 30-year loan, you would have paid $414,813 for a home you bought for $250,000.
If you can pay a little extra toward your principal each month, you will be able to pay your mortgage off earlier – sometimes shaving years off your loan.
Take a look at our savings guide if you placed an extra $100 towards your monthly payment.
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Adding a little extra to your principle will allow you to pay your mortgage faster
The estimations are from Bankrate’s additional payment calculator.
The online tool will allow you to plug in all your information to calculate your savings.
In order to find the extra $100, consider cutting back on eating out or buying the extra cup of coffee.
Some people may get bonuses or birthday money and that would be a good time to set it aside – it would truly be a present to yourself in the long run.
Things to keep in mind before paying off your mortgage early
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Source: https://www.the-sun.com/money/4873668/paying-extra-month-mortgage-free-earlier/
