Why Make an Extra Mortgage Payment?
Considering the current state of the economy, many people are trying to pay
down debt to unburden themselves financially. Have you considered paying down
your home loan? Your mortgage is probably the biggest debt you will have in
your lifetime; paying it off early will save you potentially thousands of
dollars that you’ll keep in your pocket, to spend on vacations or college
tuition, or to save for a rainy day.
If you’re interested in paying down your mortgage faster, you can make just one
extra payment per month — or even just one extra payment over the life of the
loan. You’ll be surprised at how much you can save!
Making a Difference
Here’s an example. Say you have a mortgage for $210,000. Your interest rate is
4% and your original 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 all the interest you would have paid during
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?
And another interesting tip: A single large payment early in the life of the
loan will shorten your term and reduce your interest payments more than a
contribution made later on, although any additional payment will show benefits.
Finding the Cash
If you get paid every two weeks, twice a year you’ll get an “extra”
check. Consider putting those two checks directly toward your mortgage. Even
taking half of them and paying down your loan will help reduce your loan term
and the amount you owe.
If you decide to make just one extra payment a year, consider budgeting for it
every month. An extra payment of $1,003 is $83.58 per month, or $19.29 per
week. Committing to setting aside the cash on a regular basis can make it seem
more manageable, especially if it means just skipping a couple of coffees and
lunch out one day each week.
Is This the Right Choice for You?
Remember, however, that paying off a home mortgage loan may not be the best
choice for everyone. If you have other loans, especially ones with higher
interest rates than your mortgage, then they should probably be your priority
to pay off. Credit cards and car loans usually have higher rates than home loans.
In addition, the government currently allows homeowners to write off mortgage
interest payments on their taxes.* if you are seeing significant benefits from
this credit on your tax returns, you may not want to pay off your home loan at
Making a Decision
Paying off your mortgage, as you can see, is not a decision to be taken
lightly. Be sure to review all your debts and the interest you’re paying. You
may want to consult a financial planner or accountant to ensure eliminating
this debt will have a positive effect on your finances.
If paying off your loan early is a move you’re contemplating, please contact me
so I can help you review your options, recommend a local financial expert if
you need one, and provide any assistance I can so that you’re able to make the
best decisions for your personal financial security. I look forward to helping
you save some money!
* We are not a tax advisory firm. The information contained in this
article is for informational purposes only and may not reflect current tax year
rules and regulations. Consult your tax advisor or the IRS for current tax year
rules, restrictions and regulations.