4 Good Reasons for Paying More off your Home Mortgage
Who Owns Your Home?
Most people are under the false impression that buying a home gives them ownership to the title deed on a little place they can call their own. The reality is, if you need to borrow money or take out a mortgage of any kind, no matter how large or small, that home belongs to the lender until it is paid in full. A mortgage is a serious investment and commitment, certainly not to be entered into lightly. But there are ways to reduce the amount of interest you pay in the short term that can lead to long term gains for the eventual owner of the home - you.
Who is the Real Owner of Your Home?
Paying more off your mortgage than the agreed monthly amount can do more than save thousands of dollars over the course of the home loan. It can help establish a reputation of how you handle your personal finances and help to build the equity in your home, should you need it in the future. Here are four good reasons to pay more off your mortgage and truly take ownership of your dream home.
- Save Money on Interest
- Establish a Sound Credit Rating
- Build up Equity
- Own your Home Sooner
A Lot of Money
Save Money on Interest
By paying extra off a home loan or mortgage account you are saving more than a few dollars on interest. In excess of one hundred thousand dollars, literally, can be saved if you cut ten years from the term of your loan. Based on a mortgage of $200,000 over thirty years with an interest rate of 8% the total interest due and payable by you will be $328,628. That’s a lot of money to simply hand over to the bank if you don’t really need to pay that much.
Compare the savings on interest payable over the different loan term options in the following table. Even an additional $76 per month will mean the total savings, equal a lot of money. That's money for you and not for your mortgage lender.
Compare Interest Savings on Three Loan Terms
Total interest paid
Extra per month
Establish a Good Credit Rating
Establish a reputation as someone who understands how to handle their own personal finances. This in turn will set the scene with future lenders and immediately increase your current credit rating. The less debt you have makes for a promising customer. A payee who can not only meet their commitments, but makes a point of reducing loans, proves to any prospective lender that you are a good risk.
Break Free of the Chains Around your Money
- Pay off your Mortgage and Reap the Rewards
For most of us, taking out a home loan, will be the largest debt of our lives. Making extra payments against a mortgage may be the difference between owning your own home in your lifetime; instead of the...
Build up Equity
The more payments you make, the more dollars you pay off the principal or balance of your loan. This amount is known as equity and is taken into account as part of your assets. While this is not a cash figure to be used for your daily shopping, it can certainly work in your favour if you want to borrow money for other purposes down the track. Equity is a good thing and should be added to whenever possible.
Own your own Home Sooner
The sooner you truly own your own home, the sooner you are free to use your hard earned money anyway you choose. Having a mortgage is a chain around your neck (or your money) for the entire length of the home loan. Paying even small, extra amounts could see the difference between a thirty or twenty year loan.
Imagine for a moment, those monthly payments you make today forming part of your savings in the future. How wonderful would it feel to invest the same amount you pay today in monthly mortgage payments and have the banks pay you interest on that amount? It need not be an impossible dream if you start today. Take your home out of the hands of the mortgage lenders as soon as you can and feel the freedom.
Copyright © 2011 Karen Wilton
Books on Mortgages
Freedom from mortgage payments
Links to other Personal Finance Hubs
- The Family Budget and Credit Card Balances
Reviewing the family budget when times are tough can assist in getting debt under control. Keeping track of credit card balances is an important aspect of the budget.
- What to do When Credit Card Debt is Out of Control
Credit card debt can blow out of proportion at times. The holiday season is a classic example. Everyone wants to spend money as if it is going out of fashion. We all get caught up in the moment, buying gifts...
- How to get a Good Credit Rating and the Long Term Effects of Late Bill Payments
It is not easy getting or maintaining a good credit rating, but the long term effects of late bill payments means it is essential in these unstable financial times. For those new to the game; school leavers...