Is It a Good Idea to Prepay Your Mortgage?
If you have come into some money, such as a bonus or a tax refund, here is a wonderful way to use it to build your future and save money. Simply use this money to pay down a portion of your home loan with your next monthly payment.
This is a fairly simple thing that can save you thousands of dollars over the life of the mortgage.
If you have smartly decided that you want to allocate these additional funds to build your future, you may be thinking about some other investments, such as stocks and bonds. Right now, the stock market is a bit scary for most people to start to invest in, but your home may prove to be the best investment of your life.
Using any large amount you receive, or even small amounts every month, will cut down your mortgage balance and save you a lot over the long run.
If you have already spent the rebate, there are some other ways you can try to pay your mortgage down more quickly. Without creating a great impact on your usual family budget, you can save thousands of dollars on your home loan.
You can either make a small additional payment to your home loan each month, by eliminating some little luxuries that you can do without. Because of the way interest is calculated on cumulative balances, this can save a lot of money over time. You will merely be paying your loan down earlier.
Another way to reducing your mortgage, and this does not involve sending any additional money to your lender, is to pay it more often. You can either ask for a bi-monthly payment schedule, or you can simply send one half of the mortgage at the middle of each month and then send the second half of the mortgage on the first of the month as usual. You will still be remitting the same exact amount every month, but because interest comprises such a large part of initial loan payments, you will be paying off the interest faster and reducing your loan.
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Tags: finance, home loans, Insurance, Mortgage, prepay mortgage
2 Comments
I was told that by adding $100 per $100 000 of mortgage per month you can decrease your loan period from 20 years down to 11 years. Is that true? I have been adding as much as I can every month and my loan has gone down a lot in only 6 months!
Great information here and you are certainly right about the stock market at the moment (seems very risky), as tempting as it is. Thanks for the great posting.