Should you pay
off your mortgage early?
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Make sure your loan has no prepayment penalty. You can make an extra payment once a year, pay every two weeks instead of every month, or just send in whatever you can afford above your normal monthly mortgage payment. The larger the extra payment and the sooner you make it, the faster your mortgage will be paid off and the more you will save in interest.
Often sending about $100 in extra principal per $100,000 of loan amount each month will take 10 years or more off the life of your loan. Of course, this varies depending on your interest rate.
Here are some ideas on how to budget your extra principal payments:
Are you paid every 2 weeks?Most people never even think about paying off their home early. However, you can make a big step toward financial independence by having a plan to eliminate your house payment. There are surely other ways beyond what we have listed here. What is amazing is how little it adds to your monthly cost to cut your mortgage's life by 10 years.
Put 1/2 of your mortgage payment into a separate account and make your house payment from that account.52 weeks = 26 paychecks = 13 times your house payment. In other words you will automatically save one extra payment each year. Send this in as extra principal at the end of the year and you will shave several years off the life of your loan. And save thousands of dollars in interest.
Use an outside investment to build up what you'll need to pay off the mortgage 20 years from now.
One option is a cash value life insurance policy. Another is your company retirement account. Whatever the investment you choose, the goal of this account is to equal or exceed the balance of your mortgage 20 years from now. Then in 20 years you simply pay off the loan. An advantage is that your money is somewhat available for a "rainy day". If you use life insurance you also add protection in case of death. The death benefit can be used to pay the mortgage balance.