Is It Possible To Pay Off A Mortgage Early? – An Important Question To Ask When Applying For A Mortgage
Posted by admin on Apr 22, 2019 8:00 AM
The secret to being successful in life is knowing the rules and understanding how to implement them to your advantage. In the depression, the banks introduced 30-year mortgages, purely to ensure that their borrowers could lower their payments. Unfortunately for anyone that needs a mortgage and opts to take out a thirty-year loan, and doesn’t pay extra money to reduce the term, the cost is excessive.
When you are applying for a mortgage it is important to try your best to get a fixed rate mortgage for no longer than 15 years. This should be your ultimate goal, and it will save you thousands over the lifetime of your loan. However, not everyone is likely to be in a position where they would get approved for a 15-year mortgage, much less have the finances available to pay the increased payments.
Remember that although in theory, you might be able to meet the payments, this may not leave you any wiggle room, for when Murphy strikes. What happens if your HVAC system breaks down, or the gearbox in your vehicle fails? If you are mortgaged to the absolute limit, then you could be storing up problems for yourself in the future.
Taking out a thirty-year mortgage does not however mean that you are contracted to be paying for that property for the next thirty years no matter what. Although some mortgages may prohibit you from making overpayments to reduce the balance, the vast majority of them will permit this, and this is certainly a strategy we would recommend. Learn to balance your finances every month, ensure that you have an emergency fund to cover you when problems arise, and then throw every extra dollar you can at the balance of your mortgage to slash the interest you will pay over the lifetime of your mortgage.
Perhaps the best way to illustrate the huge difference paying off a mortgage early can make is to provide some up to date facts and figures. For ease of maths, let us assume that you want to borrow $100,000. In 2018, a 30-year mortgage would have been available for about 4.18%. A 15- year mortgage for the same value, on the other hand, would have charged about 3.75%. Now the difference in percentages might not sound too extreme, but don’t forget that you will be paying those extra interest charges for double the time. The interest you would pay on the 30-year mortgage if you didn’t pay it off early would amount to $75,626. Compare that to the 15-year loan and the interest paid drops by about 60% to $30,900.
Written down in hard facts and figures the difference is staggering I am sure you will agree. So the answer to the initial question is that it is possible to pay off a mortgage early, and it makes a lot of sense to do that wherever possible. Here at the Oregon Loan Lady, we are always looked at ways to save our clients money, so whatever type of mortgage you require, speak to us first and we will work out the exact facts and figures for you, so that you can make an informed decision, before signing on the dotted line.
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