Financial Directory

Pay Off Your Mortgage

If you are living in the home of your dreams, plan to stay in your current home forever, and your mortgage payments are within your means, you might want to consider getting the mortgage paid off before you retire.  Whatever tax savings of home ownership while carrying a mortgage is not that significant comparing to the financial freedom you will have of owning your home outright.  You still need to pay your property tax and home insurance, but without a house payment, your income will be your greatest wealth building tool.  There are several ways to pay down on your mortgage early.

• Look at the Interest:  Get out the mortgage papers and make sure you are paying the lowest possible interest rates.  If your mortgage is above 7.5 percent and you have a good credit rating, look into refinance at a lower rate.

• Whittle away the Interest:  Once you have the lowest possible interest rate, commit to making extra mortgage payments.  Verify with your mortgage lender to see if there is a prepayment penalty.  By paying just one extra mortgage payment a year on a 30-year loan at 6 percent interest, you will reduce the term of the loan to 24.7 years.  You can save thousands of dollars in interest and close out your mortgage months or even years ahead of schedule.  Check out online calculator to see how fast you can pay off your mortgage and see how much you will save in interest cost by boosting your mortgage payments.

• Extra Principal Payments:  Get a copy of the amortization schedule from your mortgage lender and pay the next month’s principal payment each time you make your regular monthly payment.  Be sure to specify that the extra payments are for the principal and not interest. 

• Eliminate Mortgage Insurance:  If you put less than 20 percent down on your home loan, your lender may require you to buy private mortgage insurance against the default on your mortgage payments.  Once you reach 20 percent equity, you may be able to cancel the insurance.  Talk with your lender regarding the policy.