Should I Pay Down My Home Loan Faster?
If you have a mortgage on your home, it is wise to try to pay it down faster, or even pay if off entirely, if you can?
I'm not your financial planner, so take my advice with caution since every person's situation is different.
There are good reasons for wanting to have a smaller mortgage debt.
You will pay a lot of interest over the life of a typical home mortgage.
If you have a $200,000 mortgage and pay 4% interest you will pay $66,288 in interest over 15 years or $143,739 over 30 years.
If you have a $300,000 mortgage and are paying 4% interest you will pay $99,431 in interest over a 15 year mortgage or $215,609 in interest over a 30 year mortgage. Yikes!Here's a link to a handy calculator you can use to enter information about your loan to see how much more interest you will pay before it's paid off.
Paying off a mortgage faster by increasing your principal payments can save you a lot of money over the life of the loan.
If you paid an extra $100 a month on the above $200,000 mortgage over 15 years you would save $6,030. Over 30 years you would save $26,855. On the $300,000 mortgage, you would save $6,223 over 15 years and $28,746 over 30 years.
Here's another handy calculator that can tell you how much you will save if you make extra payments each month.
However, there are reasons why you might not want to pay off a home loan faster.
Check first with your mortgage lender to see if there is any penalty for prepaying your loan.
Lower interest payments each year means a lower business deduction. If your Time-Space Percentage is 30% and your mortgage interest deduction falls by $200 a year, you'll be paying $60 more in taxes each year. That's $900 over 15 years or $1,800 over 30 years.
More importantly, paying off a home loan faster means you will have less money to meet other financial obligations. Money you use to pay off a loan cannot be gotten back if there is an emergency.Before making this decision, I would strongly recommend taking a broader look at your financial situation. Do you have at least three months of basic living expenses in an emergency fund? Have you paid off all credit card debt? Do you have adequate insurance? Are you saving at least 10% of your profit towards your retirement?
These are the types of financial goals you should be addressing before you pay off a home loan faster.
In other words, if you are taking care of your other financial goals, then it does make sense to pay off your mortgage faster.
How to pay off a loan faster
Make by-weekly payments - If your mortgage company allows this, making half of your monthly payment every two weeks will reduce your interest payments.
Round up your payments - If your monthly payment is $560, round it up to $600 a month.
Find extra money - Put aside any windfalls into extra principal payments. Examples: parent late pickup fees, registration fees, rebate checks, tax refunds, etc.
Make one extra monthly payment each year
Try to refinance your loan to get a lower interest rate
The above ideas were taken from this article.
Are you paying off your house loan faster? If so, how?
Tom Copeland - www.tomcopelandblog.com
Image credit: https://www.thisoldhouse.com/curb-appeal/22334323/settling-down-in-a-1925-bungalow
