Tips for Early Mortgage Payoff
A monthly mortgage payment is the biggest expense in most household budgets. Paying off your mortgage early is a huge step toward financial freedom. But to take that step you have to know what you’re doing. Should you make bi-monthly payments? What about refinancing? Are there pitfalls to paying off your mortgage early? Financial advisor and teacher Rob West has the answers today.
• To pay off your mortgage sooner, Rob’s preference would be to pay more each month. That’s because the extra payment would be applied against the principal sooner than the extra annual payment.
• There are other options to pay it off, like in one lump sum if you happen to come into some type of windfall, for example, an inheritance or a bi-monthly payment strategy.
• You can run into trouble if there’s a prepayment penalty in your loan agreement. So you need to pull out your closing documents and check for that, or call your lender to find out.
• Make sure any extra payments are applied to the principal portion of your balance, not the interest.
• Do not make yourself “cash poor” in the process of paying off your mortgage early. Do not deplete your emergency fund to do it. You’ve got to leave yourself some margin.
• Refinancing to a lower interest rate can be a great way to free up money for extra mortgage payments.
In today’s show we also answer your questions:
• My husband and I are on a fixed income. How do we determine our budget for purchasing a home?
• What is the best way to pay down debt?
• We have paid down all of our debt. We would like to start a business and match 401K for our employees. How do we start this process?
• I am going to receive an inheritance. How will I be taxed on this money?
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Featured Resources From MoneyWise
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