It may seem like a crazy question, how could paying off your mortgage sooner than the 30 year deadline, not be right for you? It all comes down to maths and circumstance.
I’ve been thinking about doing this for some time now and the benefits are huge and in this article I’ll cover a few of them for you.
Interest is Different for Home Loans
Debt from your home is offered at a much lower rate than most other types of debt. Interest rates a at an all time low meaning that having debt against your home could be far less than credit cards, car loans and such like.
Over the course of an average 30 year mortgage, a $150,000 property will cost you around $140,000 in interest (at a flat rate of 5%) that is assuming interest rates don’t rise back to where they were in the 80’s. So over 30 years you have paid nearly double the price of your property.
Imagine you come into some money through a lottery win, payment bonus at work or through the loss of a loved one. If you used this money to pay off a lump sum of your mortgage in the fourth or fifth year then you could stand to save a considerable amount from the lifetime of your loan.
$20,000 paid in, early on, will decrease that $140k figure to $98k making you over a $40,000 saving. Doubling the money you invested.
Of course, this saving isn’t something that you see, it isn’t tangible. You may find it better to use the money to pay off other bills which are causing you a higher interest, bringing down your monthly costs far more than a lump payment towards your mortgage.
Another consideration to paying off your house debt, could be to reinvest this lump payment into another property. Hang on? You say! Are we really suggesting you get another mortgage to help pay your mortgage? Sort of.
Taking a leaf out of large leasing companies like Alta Apartments, means you could invest in your own smaller property and rent it out to help support your mortgage.
Considering clubbing together with family or friends may just be a better investment over time and will give you something tangible to help improve your finances.
You need to seek serious financial advice to ensure you can afford this and to understand the work and support you need to give your tenants, however having two properties is always going to be better than one. So get researching.
How to Speed Things Up
If you are certain you want to chip away at your mortgage and reduce the years you are paying into it, then there are a few simple ways to do this.
Bi weekly payments are far better than monthly payments. By paying Bi weekly you will make one full extra payment per year whilst taking smaller bites out of your income (albeit you will be biting in every two weeks)
Some mortgage companies don’t offer this way of paying, however you can manage it yourself. If your payment is $1200 a month, try putting away an extra $100 a month then paying a lump sum at the end of each year.
There is an old saying ‘how do you eat an elephant?’ the answer is ‘Piece by piece’
Paying off your mortgage early is the best way to free up large amount of cash which would allow you to save more and cut out the financial dread and worry.
So what are you doing to pay down your mortgage early? I know for me it would allow me to invest towards other opportunities and cut out a lot of the financial stress that comes along with these big debts.
Share your thoughts and comments below.