As a homeowner, you have a lot of responsibilities on your plate, and most of them cost you money. There’s homeowners insurance, utilities, property taxes, maintenance, repairs, and (of course) your mortgage to pay for. It all adds up pretty quickly and can leave you feeling like you don’t have much left over. If you can, however, there are certain advantages to paying your home off early.
Reduce Interest Payments
Mortgage interest typically accumulates on a monthly basis (though it may accrue daily on some mortgages). That means that the amount of interest you owe is recalculated every month based on how much of your principal you still owe.
As such, paying your home off early reduces your principal which reduces how much interest you have to pay. If you make extra payments or more than the minimum amount, specify that you want it to go toward the principal to make your money go as far as possible.
Avoid Foreclosure
Homeowners with a mortgage are only the owner as long as they meet the terms of the loan. If you can’t meet the terms for any reason, you put your ownership in jeopardy. Missing mortgage payments can put your home in preforeclosure.
This is the first part of the process that often ends with the lender repossessing the property. You can’t go into foreclosure, or even pre foreclosure if you’ve already paid off your mortgage though. In this way, paying it off early gives you more security as a homeowner.
Build Equity Faster
Homes are an asset that can offer a substantial amount of financial security, especially if you’ve built up equity. Home equity is the difference between your home’s fair market value and how much you owe on it. The more equity you have, the more you can borrow against it if you need cash for a major expense. Paying your home off faster is one of a few different ways you can build equity faster. That will come in handy if you ever want to take out a HELOC.
It’s not always easy to do, but paying your home off early can literally pay off. It’s a great way to reduce how much you pay in the long run, leaving you in a better position financially. Even if you only make one extra payment a year, you can save thousands of dollars. That’s something worth considering when deciding what to do with any tax return money or bonuses.
Did you enjoy reading this article? Here’s more to read. When It’s Time To Get A Bigger House