Whether you are a first-time homebuyer in San Diego hoping to pay off your mortgage quickly or you are already a homeowner, there are a few important things you should know about prepaying your mortgage.
Important Tips on Mortgage Payments
Let’s go over some important facts now which may help you save money.
- It May or May Not Be The Most Profitable Financial Decision. Paying off your mortgage early can help you save thousands of dollars in terms of interest. In many situations, it may be the best financial decision. But there are situations where there may be other financial considerations. For example, if you have other high-interest debts to pay off, taking care of those as a priority may save you more money, even if it means taking a little longer to pay off your home loan. Something else to think about is the possibility of investing some of your money instead of using it to pay off your home loan early. You could end up making more on your investments than you would have saved by prepaying your mortgage.
- You Probably Don’t Need To Worry About Prepayment Penalties. Many mortgages in the past included prepayment penalties. So, if you paid them off early, you would be charged a fee. How that fee was calculated depended on the conditions governing your mortgage. Thankfully, prepayment penalties are largely a thing of the past. Conventional loans don’t have them, and it is no longer common for them to show up with other types of mortgages either.
- A refinance can help you avoid extra interest. Do you think you may qualify for a lower interest rate than the one you are currently paying? Refinancing may help you to reduce your interest rate. This can help you save money and pay off your loan faster.
- You Need To Be Explicit About Extra Payments You Submit. If you do decide to move forward with trying to pay off your mortgage early, you can submit extra payments when your income allows. But this is where many homeowners make a mistake by not being explicit about how they want the lender to apply the payments they’re making. By default, lenders will often put extra payments toward interest, and not towards the mortgage principal. But you can prevent this simply by writing down on the check or payment screen that you want the money to be used for your mortgage principal.
- Paying Biweekly Is An Option. Did you know that you do not need to submit your payments only once per month? If you prefer, you can submit them on a biweekly basis so that you are paying twice per month. When you do this, you can break the monthly payments in half. You will feel as if you are paying at roughly the same rate, but over the course of a year, you will have submitted one extra monthly payment. Even though this may seem like a small thing, you may be surprised by just how much time and interest it can save you paying off your home loan.
- There Can Be Psychological Benefits Of Paying a Mortgage Off Early. One more consideration when it comes to paying off your home loan early is the potential psychological benefit of doing so.
San Diego mortgage lender Maureen Martin shared, “The debt that you carry can feel like a burden, weighing you down. It’s always there at the back of your mind, even when you’re not actively thinking about it, and that can be stressful.”
If being in debt bothers you quite a bit, you may find that your stress levels significantly decrease after you have finished paying off your mortgage and completely own your home.
So, weigh that alongside the financial factors when determining whether or not prepaying on your mortgage will be worthwhile to you.