Making Extra Mortgage Payments Can Pay Off, but Should You?

It’s a strategy that crosses the mind of many borrowers when they take on a
home loan: make an extra mortgage payment or two every year and save tens of
thousands of dollars in interest. The move can shave off costs for a home
loan and ensure it’s paid off faster.

Even one additional payment a year can translate into big savings.

Even so, there are potential financial drawbacks to consider. Borrowers who
can afford to make extra mortgage payments tie up cash that could be put
toward retirement or used for emergencies.

Here are some tips to consider before taking steps to make extra payments on
your home loan:

1. Weigh your priorities: It may be tempting to double down on your mortgage
payments, but doing so may not be a good idea when other financial needs
take priority. First, be sure that you have three to six months’ salary set
aside to cover emergencies. In addition, make sure you can afford to
continue saving for retirement and your children’s college tuition before
making extra mortgage payments.

2. Slash other debt first: Paying off high-interest debt such as credit
cards is another priority that should be put before focusing on paying down
your home loan faster. Consider paying off car loans, too.

That’s because home loans are likely the least costly debt a borrower will
have, especially if they took advantage of low mortgage interest rates. In
addition, homeowners are allowed to take a deduction on their income taxes
for the interest paid on their home loan.

3. Do it yourself: There are many ways to accelerate payments on your
mortgage, including paying a little bit extra every month, or making a
lump-sum payment at the end of the year. Another approach involves paying
half of your monthly mortgage bill every two weeks. Over the course of a
year, you end up making 26 transfers, which works out to an additional
monthly payment.

4. Watch out for fees: Regardless of the payment plan, make sure you
understand any fees involved with making extra payments. Be wary of
third-party companies who offer to assist with making extra mortgage
payments.

Contact me today to learn more about how I can help you with your home
financing needs.

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