You always hear, “prepaying your mortgage does more harm than good!” But, is that actually true?
As with any financial decision, you’re likely to face some pros and cons. On the one hand, you pay off your monthly mortgage payments faster, but on the other, you have less money to spare when you need it.
Let’s take a look at what actually happens when you pay extra each month.
Rates shouldn’t always be the determining factor when looking at a lender’s offer. 30 years is a long time to have monthly payments, but it remains a popular term length among homebuyers. The longer the term, the lower the monthly mortgage payments.
Even if you’re able to do a shorter term and pay off your home sooner, it can still be beneficial to utilize a 30-year term. This way, you’ll always have the option to pay more each month, instead of being bound to the higher payment each month with a shorter-term loan.
By prepaying your mortgage, you’ll pay significantly less in interest and build up equity quicker. By building up your equity, you’ll also be able to get rid of mortgage insurance sooner, therefore lowering your monthly payments.
Lastly, by paying off your debts early, your credit score is likely to go up.
Now, the biggest thing you’ll probably hear when considering prepaying your mortgage is that you will face prepayment penalties. However, Loan Pronto does not charge any such fees, nor do the lenders we work with.
With that out of the way, the biggest concern with prepaying your mortgage would be not having those extra funds for other things. By overpaying on your mortgage, you’re using the money that could’ve gone towards a retirement fund, stocks, or held onto in case of emergencies. You never know what additional payments might pop up throughout the course of a month, so it’s important to keep a safety cushion, just in case.
how to get ahead on your mortgage
There are a couple of different ways you can go about paying your mortgage off early, should you choose to do so.
Bi-weekly payments. Instead of paying your mortgage payments as a lump sum every month, try splitting it and paying the smaller amount every 2 weeks. By doing this, you will actually end up paying about 13 months worth in just 12 months. This option is the most conservative and won’t be as drastic of a difference in cost.
Extra monthly payments. This option provides the homeowner with more flexibility. You can choose how much extra you would like to pay each month, meaning the speed at which you pay off your mortgage will be dependent on the amount you choose. Tip: Make sure to check with your lender that this extra payment will reduce the principal.
the bottom line
Before deciding if you should start prepaying your mortgage, make sure to talk to your loan officer. They will advise you on the best practices and determine if that’s the right option for you.
let’s get started
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