How Much Risk Do You Want To Take
Whatever you do with your savings there is some kind of risk. Inflation diminishes the value of money over time, so £5,000 today will have lower purchasing power in 20 years time.
Investing in assets that rise in value is one way to beat inflation, but theres also a risk that the price of the investments fall and you lose money.
Many people look at their home as an investment, but again theres no guarantee that youll be able to sell it for more than you paid. But you will always need a place to live and can keep living in your home regardless of how much its worth. So, overpaying your mortgage is lower risk than a portfolio of shares in that sense.
Create A Monthly Budget
Do you have too much month at the end of your money? Do you ever look into your wallet and wonder where that money has gone? We have all had this experience at some time or another, and we dont ever want to again!
The best way to ensure that you know where your money is going is to create a budget. Most people think of the word budget as a restriction someplace to list all of your debts and bills that have to be paid with no regard for having a life.
It helps instead to view a budget as a spending plan. In a spending plan, you PLAN how you will allocate your take-home pay. Do you HAVE to spend $200 per month on ballroom dancing lessons? If the answer is yes, put that in your budget and find other places to trim down if you need to.
Creating a thoughtful, complete spending plan allows you to know exactly where your money is going each month so you can tackle that mortgage faster.
Refinance With A Shorter
A shorter term on the mortgage means it goes away sooner, but at the cost of a much higher monthly payment and perhaps some out of pocket closing costs. Examine the loan closely.
The monthly payment on a 30-year, $200,000 mortgage at 2.5% would be $790 a month.
The monthly payment on a 15-year, $200,000 mortgage at 2.25 % would be $1,310.
Thats another $520 a month to finish paying off your mortgage 15 years sooner.30 Years vs 15 Years of Payments
|30 Years of Payments|
|*For a $200k mortgage|
The bottom line on this decision is the bottom line: Can you afford the higher monthly payment of a 15-year loan, or are you better off contributing extra each month when you can to a 30-year payment?
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Why Pay Off Your Mortgage Early
Few people keep a 30-year loan for its full term. In fact, homeowners stay put just 13 years on average and their loans might have an even shorter lifespan if they refinance at some point.
Homeowners who plan to sell their home orrefinance soon usually arent concerned about paying off their mortgage early.
But what about homeowners who stayput for the long haul? Those 30 years of interest payments can start to feellike a burden, especially compared to the payments on todays lower-interest-rateloans.
You may find yourself wonderinghow to pay your mortgage off faster so you can live debt-free and have fullownership of your home.
Here are five strategies you canuse to meet those goals.
The Power Of Compounding
One of the reasons for such a difference between the investment gains and the interest saved from paying the loan off early is the power of compounding. If the $100,000 investment is not withdrawn during the ten years, the interest earned each year is reinvested, leading to interest being earned on interest, which can magnify the investment gains.
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What Is Your Remaining Mortgage Balance
You’ve paid into your mortgage for a few years.
But do you know your remaining mortgage balance?
This mortgage balance calculator makes the process of figuring your remaining mortgage balance easy.
Simply enter your original mortgage amount, annual interest rate, original term, monthly payment amount, and one of three other known variables. Instantly, you’ll have your estimated mortgage balance!
It is important to note, however, that this calculator only works with fixed-rate mortgages.
Here’s what you need to know about mortgage balances . . .
Should I Pay Off My Mortgage Early Pros And Cons
Many financial planners have clients that ask, Should I focus on paying off my mortgage early? The reason many people hang on to their mortgage and make the monthly payment for thirty years is they think they need the mortgage interest deduction as a write off .
The other reason they give is that they cannot possibly squeeze another dime out of their budget to pay it off early, even if they wanted to. If you think about it, these reasons are actually excuses. Mathematically, wouldnt you be better off with no mortgage rather than a tax write-off of the interest-only? The more years you pay, the less interest there is, so the smaller your deduction.
Also, EVERYONE, including me, can squeeze a few extra dollars out of their budget, and every little bit helps.
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Bring Your Lunch Into Work
Sure, bringing an egg salad sandwich to work every day isnt as fun as going to a restaurant with your coworkers. But trading lunch out for eating in can make you a lean, mean, mortgage-free machine.
Suppose packing your lunch frees up $100 to use toward your mortgage every month. Based on our example above of the $220,000 loan, that $100 in lunch money will help you pay off your mortgage four years ahead of schedule and save you nearly $27,000 in interest!
Cant quite spare a whole $100 from your food budget? No worries. Even small sacrifices can go a long way to help pay off your mortgage early. Put Andrew Jackson to work for you by adding just $20 to your mortgage payment each month. Based on our example, youll pay your mortgage off a year early, saving over $6,000 in the process.
How Much Extra Should You Pay To Payoff Your Mortgage Early
You dream of paying off your mortgage early.
You long for the day when you are debt free.
But how do you do it?
How much must you pay each month to be out of debt by a certain date?
What if you wanted to pay off your mortgage in 15 years instead of 30? How much would you save?
The good news is this mortgage payoff calculator makes figuring out your required extra payment easy.
You choose how quickly you’d like to pay off your mortgage, and the calculator will tell you the required extra monthly payment to get it done. It will also tell you how much interest you’ll save!
However, before you start making your extra payments, there are a few factors you’ll want to consider first . . . .
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Mistake #: Extending Your Loan Term When Refinancing
Refinancing can save you money in multiple ways, as it allows you to convert to either a shorter or longer loan term, depending on whats best for you. So if youre 10 years into a 30-year mortgage term, you could potentially refinance to a 10-year term and shave off 10 years. On the flip side, you could go for another 30-year term to lower your monthly payments.
However, loans with shorter terms tend to have lower interest rates, allowing you to both save on interest and reach full ownership much sooner. In some cases, though, refinancing could cost you more in the long run, especially if youre planning to extend your loan term. Before you refinance, its a good idea to crunch some numbers and figure out whether having a longer mortgage term really makes sense.
Dont forget closing costs either. If your lender agrees to let you roll those costs into your loan, you could end up paying more money. After all, youll now be on the hook for interest on a larger loan amount.
Benefits Of An Early Mortgage Payoff
There are two main benefits of paying a mortgage early less interest paid and more home equity faster.
But paying off the mortgage is not necessarily always the best choice if you have more expensive debt, like outstanding credit card balances. Or if you havent yet saved for retirement. You may also want that money to purchase additional real estate, as opposed to it being locked up in your home.
This calculator can at least do the math portion to illustrate the power of paying extra and paying off your mortgage ahead of schedule. Youll then need to weigh those savings against other options like paying your credit cards or ensuring youve saved for retirement.
In other words, make sure youre actually saving money by allocating a larger amount of money toward paying off the mortgage as opposed to putting it elsewhere.
If you want to see the payment schedule, which details every monthly payment based on your inputs, simply tick the box. This will also show you your loan balance each month along with the home equity you are accruing at an ideally faster rate thanks to those additional payments.
To determine your home equity, simply take your current property value and subtract the outstanding loan balance. For example, if your home is worth $500,000 and your loan balance is $300,000, youve got a rather attractive $200,000 in home equity!
And thats all it takes to use this mortgage calculator with extra payments. Happy mortgage saving!
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Mortgage Loan Do’s And Don’ts
5 Minute Read | September 24, 2021
Feeling overwhelmed about your mortgage options? No wonder! Youve got plenty of choices when it comes to financing the purchase of your home, and it can be hard to know which one is best.
Daves favorite way to pay for a home is with cash. It may sound crazy, but people like you do it every day! If thats not feasible for you, the next best thing is a smart home mortgage loan. It may be easy to dive headfirst into the mortgage option that will allow you to buy a home with next to nothing down. But a bad mortgage product can be a liability in your financial portfolio. A home should be a blessing to your family, not a financial nightmare!
Thats why its a good idea to know whats out there and why you need to avoid some of the more popular mortgage options.
If you need help with mortgages, we recommend talking with Churchill Mortgage. They can answer any mortgage questions you have.
Are There Other Ways To Save On Interest
Yes! Consider applying any extra funds at the end of the month toward your loan balance. Even paying an extra $50 or $100 a month allows you to pay off your mortgage faster.
Another idea is to refinance to a 15-year mortgage. Though your payments will be a bit higher, your overall savings will be greater. The shorter loan term also means that youll pay off your home loan in a fraction of the time.
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I Now Have $1 Million In My 401 And $1 Million In Company Stock I Will Have To Sell Stock To Pay Off The House
Paying off a mortgage ahead of schedule might seem like a strong move close to retirement, but it could actually be a costly decision in the long run.
I am considering paying off my mortgage. I am 60 years old and have a $250,000 mortgage on my home. The home is worth $950,000. The mortgage payment is $2,800 a month on a 30-year loan. The interest rate is 3.875%, and I have 24 years left on the loan.
I live in a high tax state. Taxes are $1,200 per month. The home is in good shape and needs no major repairs. I plan to work until I am 67. I will have a pension of $8,000 per month. I now have $1 million in my 401 and $1 million in company stock. I will have to sell stock to pay off the house.
Should I pay off the mortgage now, or wait until I retire after 67?
Waiting to pay
Should I pay off my mortgage in full? is one of those all-time, classic questions up there with Whos on first? and Wherefore art thou Romeo?
I say this not to poke fun at you or your situation, but to drive home how common a question this is. Indeed, youre not the only reader who has written me recently asking some variation of this query. I polled financial planners to get their take on this age-old quandary, and time and again they told me that they have clients dealing with this very issue, especially as theyre staring down retirement.
Principal And Interest Of A Mortgage
A typical loan repayment consists of two parts, the principal and the interest. The principal is the amount borrowed, while the interest is the lender’s charge to borrow the money. This interest charge is typically a percentage of the outstanding principal. A typical amortization schedule of a mortgage loan will contain both interest and principal.
Each payment will cover the interest first, with the remaining portion allocated to the principal. Since the outstanding balance on the total principal requires higher interest charges, a more significant part of the payment will go toward interest at first. However, as the outstanding principal declines, interest costs will subsequently fall. Thus, with each successive payment, the portion allocated to interest falls while the amount of principal paid rises.
The Mortgage Payoff Calculator and the accompanying Amortization Table illustrate this precisely. Once the user inputs the required information, the Mortgage Payoff Calculator will calculate the pertinent data.
Aside from selling the home to pay off the mortgage, some borrowers may want to pay off their mortgage earlier to save on interest. Outlined below are a few strategies that can be employed to pay off the mortgage early.:
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Make Extra Principal Payments Monthly
There are pros and cons to choosing to make extra principal payments instead of refinancing.
- Save on interest by reducing principal and years paid on loan
- No additional closing costs for refinancing
- No savings on interest rate
- Need for self-discipline
- Eliminates fewer years on total mortgage when compared to a 15-year refinance
Overall, making additional principal payments can be a win-win if you are disciplined enough to make the additional payments on a regular basis. If you can pay an extra $100 per month towards principal on a $100,000, 30-year mortgage, the average time shaved from the loan is nine years.
Loan Calculator Paying Extra On Principal
Making extra payments on your mortgage can drastically reduce the number of years on the loan . . . and can save you a tremendous amount of interest. How much interest can you save with an extra payment every month? Take a look . . .
|Initial Loan Amount|
|SAVINGS||Save $30,580 in interest. You will pay off your mortgage 8 years and 8 months early.||Save $37,069 in interest. You will pay off your mortgage 5 years and 2 months early.||Save $39,937 in interest. You will pay off your mortgage 3 years and 8 months early.|
If youre thinking about refinancing your mortgage to a lower interest rate or decreasing the length of the mortgage, you might be wondering if it would be better to make an extra payment instead of going through the refinance process. The extra payoff calculator will estimate the time you can payoff the mortgage starting with your present balance.
This calculator will not accept partial months. For example, 26 years and 1 month. Please use whole numbers.
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Review Your Mortgage Needs
When your mortgage term comes to an end, you have to pay off your mortgage in full or renew it. This is a good time to review your mortgage needs and make sure you have the right product.
To help you find the right mortgage, consider if:
- your budget allows you to increase your payments to pay off your mortgage sooner and save on interest
- you want to change your payment frequency
- youre likely to make additional payments
- youre satisfied with the services offered by your current lender
- you want to consolidate other debts that have higher interest rates and increase the amount of your mortgage
- you still need optional life, critical illness, disability or employment insurance
How To Understand My Mortgage
A mortgage is a very long commitment, often upwards of 30 years. During that time, life will go on and it can be very easy to lose track of how much time you have left to pay on that mortgage. When this happens, you can refer to your loan documents or contact your lender to see how much time is left.
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