US Real Estate Directory Blog

Thinking About Prepaying Your Mortgage?

February 7, 2010 on 8:04 am | In Mortgages | Comments Off

If you are one of the very few who still have to decide what to do with your tax refund, here is a great idea. If you still haven’t decided what to do with this rebate, or any other windfall you may get, such as a bonus, consider the benefits of prepaying your mortgage.

This is a fairly simple thing that can save you thousands of dollars over the term of the mortgage.

If you want to use the rebate to invest in the future, you could not find a better method, instead of investing in 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.

Prepaying some of your mortgage may help you to meet retirement goals ahead of time, since you can shorten the maturity date of your home loan by cutting away at the interest payments, which form a great part of your mortgage repayment.

But even if you have already spent the tax refund, or don’t have a lump sum to give to prepayment of your home loan, there are other ways to reduce this debt more quickly and save overall while you do so. This can be done without impacting your everyday expenses to a large extent.

You can add a small amount each month to your monthly mortgage payment, which will be allocated to the interest of your mortgage, reducing the outstanding balance more quickly. Because of the way interest is calculated on accrued balances, this can save a great deal of money over the long run. In this way, the overall mortgage is paid down more quickly as well.

There is another good way to pay your home loan faster is to pay it more frequently. You can either request 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 paying the same exact amount each 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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