You may have recently purchased a home with the help of a reliable real estate agent or have been a homeowner for a number of years now. No matter if you are a new or current homeowner you are likely paying for your home through a long-term mortgage plan.
Mortgages are the most prevalent type of personal debt for most homeowners. This is depending on the sort of mortgage, you typically finance 80% of the property’s sales price when you take out a home loan. However, the entire cost of a mortgage includes not just the purchase price of a property, but also the interest you pay on the loan. For example, if you take up a 30-year fixed mortgage loan, you can expect to make payments to your lender, covering principle, interest, and homeowners insurance for the following three decades. This may not be the case unless you choose to pay off your mortgage early. If it is affordable, getting out from under your mortgage may provide benefits that will aid both your finances and your quality of life, especially in retirement.
Save money on interest
The price you pay your lender for the usage of their money is referred to as interest. When you apply for a mortgage, your lender may present you with many interest rate alternatives. The interest rate determines how much you must pay to borrow money. These rates can fluctuate over time and will affect your payments. You could potentially save money on interest by paying off your mortgage early. The fewer payments you make to pay off your mortgage loan, the less interest you pay. You may save tens of thousands of dollars by paying off your mortgage early.
To pay off your mortgage faster to save on interest your mortgage contract may allow you to increase the number of regular payments or allow you to make lump-sum payments. This is referred to as a prepayment or prepayment privilege by your lender. To learn about your prepayment alternatives, consult your mortgage contract or contact your lender. In addition, be sure to inform your lender that the extra payments will be used by your principle rather than the interest.
Financial freedom
Monthly expenses to pay off your mortgage could be a large portion of your monthly budget. You may want financial freedom earlier to pursue other ventures or activities or simply have extra spending money. The idea of financial freedom is that you would want to be entirely debt-free, including mortgage-free, so you had a rent-free roof over your head and still have the capital for anything you desire to pursue. Maybe perhaps not in lavish luxury, but you would never be concerned about where your next meal was coming from. Some examples you may pursue with financial freedom are living somewhere tropical, traveling around the world, or owning your dream business. At the end of the day, paying off your mortgage early can allow you to have the extra money in your bank account every month to go after other economic opportunities.
Own your home outright
Paying off your home mortgage early ultimately means that you would own your home outright. Financially this comes with a number of benefits such as the ease to get a home equity loan. When you apply for a home equity loan line of credit, your financial institution will decide how much you may borrow depending on the amount of equity you have in your property. Those who have a home with a standard mortgage may have difficulty obtaining a big loan if one is required. If you paid cash for your property, you will be able to borrow a certain percentage of its worth if you have an emergency or need the money for home upgrades or other tasks. Another benefit of owning your home outright is reaping the potential value that your home may gain over the years. Looking in the long-term a home can appreciate in value, and with owning a home outright, if you ever decide to sell your home you would have made a profit on that sale because of that added value.
Protection during an unstable housing markets
The impact of an uncertain real estate market on homeowners is a big concern for many homeowners, especially those who recall the recession in 2008. When Canada experienced a drop in new housing starts, a decrease in sales of homes, and a fall in housing prices. Many homeowners are concerned about their ability to make mortgage payments during a large-scale financial crisis. For example, if you suddenly need cash and want to access the equity in your home, it may be difficult to do so if the value of your property falls because of an uncertain market. However, after you have paid off your mortgage, you will no longer have that monthly financial burden, and you will be able to wait for the market value of your property to recover.
Peace of mind
Not having to deal with home debt provides peace of mind for conservative or risk-averse savers. Even for the most risk-averse investors, owning a house provides peace of mind since it gives you more options for how to invest current earnings and build wealth. Paying off your mortgage early may be a wise decision especially when you approach retirement. It is recommended that if you are retiring and want to downsize to a less costly property, it may be best to use the equity in your present home rather than get a mortgage on the new home. Now having to worry about monthly payments can bring your mind at ease.
For many homeowners, paying off their mortgage is an end goal aspiration. If you and your family can achieve this objective, it may be a wise decision to pay off your mortgage. Not only will it free up more cash each month, but it will also give additional financial stability during a housing crisis, allow you to invest more, and may even allow you to pursue ambitions that require further financial support.
