Paying Off Mortgage Balance Earlier Than The Loan Term

Paying Off Mortgage Balance Earlier Than The Loan Term

Gustan Cho Associates are mortgage brokers licensed in 48 states

This BLOG On Paying Off Mortgage Balance Earlier Than The Loan Term Was PUBLISHED On February 28th, 2020

Every homeowners dream is to have a home that is free and clear of any mortgage. Paying Off Mortgage Balance Earlier Than The Loan Term is every homeowners dream:

  • Most homeowners have a 30 year fixed rate mortgage
  • There are a select few homeowners who are very disciplined and pay a little more every months so they can have their mortgage paid off prior to the due date
  • All homeowners remember the date of their home closing
  • Signing the endless paperwork and mortgage docs at the closing table
  • Having a free and clear home may sound like a major accomplishment and a dream come true
  • However, homeowners should ask the question whether it is the best use of their money

In this article, we will cover and discuss Paying Off Mortgage Balance Earlier Than The Loan Term.

Benefits Of Paying Off Mortgage Balance Earlier Than The Loan TermPaying Off Mortgage Balance Earlier Than The Loan Term

Most consumers have their priorities of debts they want to pay off.

  • Mortgage loans are not one of those realistic debts consumers can pay off early due to the enormous debt
  • Paying down debts, whether they are credit cards, auto loans, and/or mortgages, consumers save in paying interest expense
  • A mortgage loan balance at a 5.0% interest rate over a 30 year term, consumers will be paying over $160,000 in interest expense
  • Their monthly principal and interest payments will be $900 per month
  • This monthly payment needs to be paid over the course of the 30 year term
  • So a $150,000 loan balance will end up being a total of over $300,000 over 30 years
  • That is a lot of interest expense homeowners needs to pay to own the home free and clear

Paying Bi-Weekly Mortgage Payments Will Save 6 Years Off Loan Term

Making Bi-Weekly Mortgage Payments versus Monthly Payments will save at least six years off the 30-year loan term.

  • Reason being is homeowners who make bi-weekly mortgage payments make an extra mortgage payment each year
  • Doing so, the extra monthly mortgage payment a year will go towards paying down principal
  • Most homeowners will shave 6 years off the term of their mortgage by disciplining themselves in making bi-weekly versus monthly mortgage payments

Making Periodic Large Payments Towards Mortgage PrincipalWill paying two weeks mortgage repayments save you six years on loan repayment?

I know dozens of goal oriented folks whose mission is to pay off their mortgage by a certain date.

  • Many will pay extra money they get from their income tax refund straight towards their mortgage loan balance
  • For example, say a homeowner inherits $20,000 from the death of a family member
  • They use those funds to pay down their mortgage principal in their 4th year of their 30 year fixed rate mortgage
  • Doing so, they will be paying off their mortgage term to 23 years versus the 30 year term
  • The mortgage interest expense is shaved down from $140,000 to $98,000

This saves the homeowner over $42,000 from the term of their mortgage loan.

How Most Real Estate Investors Think Of Their Primary Homes

There are cases where borrowers want to purchase a second and/or investment home:

  • These buyers often have primary homes with a lot of equity
  • Mortgage Rates on investment properties are higher than primary owner occupant properties
  • It makes better financial sense if borrowers were to do a cash-out refinance on their primary homes and purchase investment property cash
  • However, investors do not want to touch their primary residence and rather qualify for investment home loans at higher rate
  • Many homeowners get a peace of mind by having equity in their primary homes
  • Many consumers have a hard time saving money
  • By building equity in their owner occupant property, it forces them to save by building equity