Disclaimer: Good Day, Readers. WealthBuildingPowers blog is a financial literacy/competency blog and does not provide specific investment recommendations.
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ELIMINATING DEBT: THE ADVANTAGES OF PAYING YOUR MORTGAGE OFF EARLY!
Mortgage debt is typically our most significant debt. Today those numbers are intimidating.
A friend sent me the below note about the advantages of paying that debt off early—a strategy I have utilized in the past.
“The best strategy I have heard for saving money is paying over and above on the mortgage payment to reduce the principal and pay off the mortgage early – trying to save you all that interest money, which is about 67% of the cost of the mortgage. Of course, if you plan to sell the home quickly or refinance, that may not be the better strategy, but for the family that likes where they live, it is a great way to save a lot of $$$$ that would have normally been spent. Of course, you may get less tax deduction; however, I prefer to keep my money rather than count on the government to give me a refund!!”
FINANCIAL BENEFITS OF EARLY MORTGAGE PAYOFF
Savings on interest: As you pay down the principal balance of your loan, you reduce the amount of interest you’ll pay over the life of the loan. The earlier you start making extra payments, the more of YOUR HARD-EARNED money you save.
Faster Building of Equity: Beneficial if you decide to sell or refinance your property.
Savings Mechanism: Making extra payments increases your equity and net worth.
Flexibility to fund other savings objectives: Paying your loan off early frees up considerable cash to fund retirement, education, investment properties, etc.
PAYING YOUR LOAN EARLY PUTS SERIOUS DOLLARS IN YOUR POCKET!
When you make extra payments on a mortgage, the extra money goes directly towards paying down the principal balance, which reduces the amount of interest you’ll pay over the loan’s lifetime because you pay the loan off years earlier.
TIME AND INTEREST REDUCTIONS
The median U.S. mortgage is about $350,000. Assuming a standard 30-year loan and a six percent interest rate results in a monthly payment of $2098.37.
| Extra Per Month Towards Principle | Pays Loan Off Early: | Saved Interest Cost: |
| $100.00 | Three years and five months | $28,957.96 |
| $200.00 | Six years and ten months | $58,924.28 |
| $300.00 | Ten years and two months | $88,853.20 |
| $400.00 | 13 years and six months | $118,744.64 |
| $500.00 | 17 years earlier | $148,598.60 |
ACCELERATING YOUR MORTGAGE PAYOFF
- Make bi-weekly payments: Instead of making one monthly payment, set up auto payments of half or more of your monthly mortgage payment every two weeks. If your mortgage payment is $2098.37, you pay $1049.19 every 14 days. At the end of the year, you paid an extra $2098.37 toward your principal balance.
- Round up your payments: If you can’t afford to make bi-weekly payments, try rounding up your payments. For example, if your mortgage payment is $ 2098.37 per month, round it up to $2,200.00 per month.
- Make a lump sum payment: Apply some or all of a tax refund, bonus, gift, inheritance, etc., towards your principal balance.
- Refinance your mortgage: I hope interest rates drop in 2024. If so, you may be able to refinance and get a lower interest rate. Consider changing to a shorter mortgage (15, 20, 25 years).
- Select a shorter number of years. Instead of a 30-year mortgage, consider a 15-year mortgage or even a 10-year mortgage. The shorter the term, the less interest you will pay over the life of the loan. {WARNING: If you select a shorter-term mortgage, your monthly payment increases significantly. If you are a two-income household, ensure you can make this larger payment on one income if necessary.}
CONCLUSION – DEBT FREE LIVING ADVANTAGES!
It is a day to celebrate when you pay that debt in full and collect the Title to YOUR property.
The key is always: SPEND LESS THAN YOU EARN! Invest your savings using the above strategy or increase your 401K, ROTH IRA, contributions, etc. But invest your savings! Pick your plan or create your own and apply it consistently. GET IT DONE!
The paths to financial freedom are UNLIMITED. CHOOSE YOUR OWN!
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ABOUT ME
I am a proud nerd (as my beautiful wife and daughter have told me) investment and finance blogger with an NC. State, Chemical Engineering, University Rutgers, MBA and Harvard University, Advanced Management education.
I left a corporate career because I desired to make a difference as a speaker and writer. I was blessed to be coached and mentored by strong women and men in my family and professional life. It is my time to serve and give back.
DISCLAIMER
I started my first business at ~13 years of age (a small but brilliantly created plant nursery). I am a successful investor in stocks, options, and real estate and am happy to share my finance and investment lessons. I am NOT a licensed financial advisor. Please do not construe my suggestions on this blog as recommendations for your situation. As an investor, you must establish your risk/loss tolerance. Investment in any asset involves risk, including complete loss.
Please seek your licensed CPA or fiduciary financial advisors for individual financial advice.
I write this weekly blog to make an impact by reaching an audience and demonstrating the need for financial literacy. I will help you get there.