Paying off debt as soon as possible is always is a good thing –but does that rule also apply to mortgage debt? Is making an extra payment each month to pay off the mortgage early worth it?
In this week’s post, we’ll explore the pros and cons of paying off the mortgage early.
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Pro: Save On Interest
Making an extra payment to the principal balance of your mortgage helps save you money by lowering the amount of interest you pay. Although you can make an additional payment towards your principle at any time, this method is most effective when you first get your loan. This is because the principle is higher at the beginning of the loan. Hence, you are paying more in interest. Making an extra payment will result in saving in interest over time.
Con: Miss Out On Other Investment Opportunities
If you have the extra cash to put toward making an extra payment, that means that you have the extra cash to invest. Instead of trying to save money on your mortgage, you could, instead, making your money work for you. Making additional contributions to your 401(k), especially when you’re 10 years or more away from retiring, can result in significant earnings –sometimes more than what you could save by paying off your mortgage early.
Pro: Peace Of Mind
Reducing monthly expenses brings peace of mind and considering that your mortgage payment is likely your biggest expense, you can start to imagine how good it would feel to eliminate it early. Also, when calculating the cost of living, inflation, and what the average, fixed, retirement income is, getting rid of a housing expense becomes even more attractive.
Con: Prepayment Penalty – Sometimes
Some mortgages carry a prepayment penalty, meaning that you’re limited as to how much you are allowed to pay off and when. Though this may seem unfair, it’s not all bad news. The types of loans that carry prepayment penalties often have lower interest rates or other perks that save you money.
When it comes down to it, deciding to pay off your home loan early is a personalized is not a one-size-fits-all decision. It depends on your ability to pay, the type of loan, how mature your loan is, whether your extra cash would be more useful in other investments, how close you are to retiring, as well as other factors.
Even if you don’t currently own a home, if you plan to pay off your mortgage early, then you’ll want to make sure you choose a home loan that allows for prepayment.
Call Tara Mortgage Services today for expert and personalized home loan guidance, and together we can find a mortgage option that works for you.
A lot of buyers, especially first-timers, worry about whether or not they’re going about their home search the right way.
On the one hand, buyers fret that if they find their “dream home” too early, they might be missing out on something better. But, on the other, if the process takes a while, they worry that they’ll never find a home that works for them. The FOMO is real.
Keep reading to find out if you’re on track with your home search and what you should do if you find that you need to go back to the drawing board.
How many homes should you see?
Honestly, that depends. While we understand the impulse to try and rely on hard-and-fast statistics, homebuying is a truly personal experience rather than a science.
Trust your intuition. You know your needs, likes, and dislikes better than anyone else. You’ll know when you’ve landed on the property that makes the most sense for you to call home.
That said, though, there are a few things you can do to help speed your search along:
If you’ve been looking for a while and haven’t really found anything that meets your needs, it might be time to redefine search criteria. Sit down and take some time to think about which features you really need to have in your new home versus which are more nice-to-have, wishlist items.
Narrowing your search
Sometimes, narrowing search criteria can get tricky. If you’re unsure of where to start, try using the following as a starting point.
Focusing in on a particular area is one of the easiest ways to refine your search. You can start by doing research into different neighborhoods by you. Think about what you commute to work will look like, if the area has amenities that you enjoy, the quality of the school district, and home values.
With that in mind, though, you getting too hung up on a particular zip code can also limit your criteria. The key is keep an ideal location in mind while still staying open to possibility.
Bedrooms & bathrooms
When searching for a house, you should have a firm idea of how many bedrooms and bathrooms you’re after. Whether you’re just looking to accommodate yourself and the occasional guest, are thinking about starting a family in the near future, or want the option to convert a spare bedroom into an office, this information will surely help narrow your search.
We advise against compromising on this feature because, while it is possible to put an addition on later, doing so takes a substantial amount of time and effort. More often than not, homeowners find that they would rather put their home on the market than go through the hassle of trying to renovate it to fit their changing needs.
This is the big one. Once you have the above two details settled, it’s time to narrow your search results further to only those homes that you can truly afford. If you’ve already applied for a pre-approval, that number can be a good place to start. However, remember that a pre-approval shows the maximum amount that you can ask for in a loan. You may not want to borrow up to that amount once you factor in the rest of your monthly expenses.
To find a more comfortable sale price, we recommend using a mortgage calculator to get a sense of what your monthly payment could look like at various loan amounts and interest rates. Then, once you’ve landed on a number that works for you, try plugging that into your monthly budget to get a sense of how the payment will feel in addition to your other costs.
The good news is that once you’ve narrowed your search down, your pool of available properties will likely be much smaller than it was before – and much more targeted to meet your needs. From here, your search will be about zeroing in on your perfect match on the basis of which property was the best fit for your personal tates.
You’ll know when a property feels like it could become home versus when you’d be trying to make the best of an imperfect situation. Keep hunting until you find the former.