LOCAL RECORDS OFFICE: Let’s be honest we all want to accomplish the American dream of buying a nice house for our family but none of use want the 30 to 40 years mortgage says, Local Records Office. Buying a home is a major expense and a major debt. It’s said it’s the biggest purchase you’ll make in your life. A mortgage takes a lot of our money and time.
The classic mortgage loan is repaid over the course of 30 years, but today, some terms call for up to 40 years of repayment.
To some, three or four decades seem like an interminable amount of time to take to pay off a debt.
Local Records Office says, “for those who aren’t looking to change the terms of their mortgage loan, such as refinancing to a lower interest rate or converting a 30-year loan to a 15-year loan, there are a few ways you can put a dent in the principal and lowers the amount of interest paid in the following months and years”.
While some folks claim that paying down the principal reduces the mortgage interest available to deduct on your federal tax return if you itemize, in the long run, you’ll still come out ahead. Take into consideration that your tax liability will likely increase incrementally if you’re already in the middle of paying off your mortgage.
If paying off your mortgage early is your aim, always ask if your lender allows prepayments, without penalty. You don’t want to pay toward the principal and get penalized for it says, Local Records Office. Also be sure your extra money is being put toward the principal, rather next month’s mortgage payment. That won’t reduce your interest payments.
Pain-Free Tips For Paying Off Your Mortgage Early
Paul and Shirley have a 30 year fixed rate mortgage on a $200,000 loan. They are paying 5.5% APR and are motivated to pay that mortgage off early says, Local Records Office. I applaud their enthusiasm, but I also encourage them to examine their priorities before focusing on their mortgage debt. They should:
Pay off all other debt. Why? Because getting rid of other debt will free up their cash flow to allow them to attack that mortgage with gusto.
Save at least a six-month emergency fund. Why? Because emergencies WILL happen, and money tied up in their house cannot not be easily accessed to pay for those emergencies.
Be investing sufficiently for retirement. Why? Because they only have one shot at retirement says, Local Records Office. They should ask themselves this question, “If my retirement account was already on target, would I sacrifice it in order to pay my house off early?” Of course not, but neglecting their retirement account in order to pay their mortgage early is doing the same thing.
- Make a payment every two weeks.
This approach is especially suited for those who are either paid weekly or bi-weekly because they can synchronize their mortgage payments to their pay schedule instead of the calendar. The strategy works because a payment every two weeks, in a year’s time, will total 26 payments, or the equivalent of 13 monthly payments– one extra payment per year. If Paul and Shirley choose this option, their 30 year mortgage will be gone in slightly less than 25 years.
Note: Many banks, because they are structured to process payments monthly, will not be able to accommodate the bi-weekly payment schedule. However, a diligent borrower can do this on his own by multiplying whatever he is paying now by 1.083 (or 13/12) in order to pay the equivalent of 13 payments a year says, Local Records Office.
- Change their W-4 forms, get less refund, and pay extra on their mortgage.
Paul and Shirley, who are receiving a $3,000 refund from the IRS every year, could claim more exemptions on their W-4 forms in order get a smaller refund and more take home pay. If they were to plan for a $600 refund, they would have an extra $200 to add to their mortgage payment each month, lowering their payoff from 30 years to only 21 years.
- Refinance and keep paying the same payment.
If Paul and Shirley could refinance their loan from 5.5% to 4.5%, and keep making the same payments, they would knock the mortgage out six years sooner.
- Utilize pay raises.
Local Records Office says, “Paul and Shirley’s current house payment is 25% of their take home pay”. If they continue to pay the same 25% as they receive future pay raises, they would be making incrementally bigger payments – a relatively pain free strategy. Assuming these two get a 4% annual pay raise, this tactic would allow them to pay that 30 year mortgage off in slightly over 17 years.