Everyone that has a mortgage is looking at that finish line so they can live mortgage free. The thought of not paying a mortgage is quite appealing for sure. But is paying your mortgage down fast the best thing to do?
The easiest way to pay your mortgage quicker without even knowing you are paying your mortgage down is paying it off biweekly accelerated. For an explanation of the difference between biweekly accelerated and regular biweekly, click here. This simple thing can save you over 3 years of mortgaging just with this little change.
Lump Sums and payment increases are the other common ways to pay down your mortgage. Most lenders will allow you to do up to 10-20% lump sum and/or payment increases. There are times when you should consider taking advantage of these options and times where you may want to hold off.
If your mortgage is on a home that is a rental property or a home that you run your home business out of, you may want to hold off on paying a little extra. Paying your mortgage off quicker could have you missing out on some tax benefits. Talk to your accountant to see if this could affect you. If your mortgage interest rate is low, perhaps investing it could be better for you. $100,000 borrowed at 3.5% costs you $3500 per year. If you can invest this and make 6% ($6000), you just made yourself an extra $2500. There are some MIC’s (Mortgage Investment Corporations) that are paying out up to 8%. Perhaps an investment here would be better? Of course there can always be some risks with investing.
If your mortgage is in a higher interest rate, you are better off to make extra payments so you can save yourself some money. Higher rates can eat your money pretty quick. If you are not comfortable with investments or just like to sit with as little debt as possible, Put the money on your home.
Home Equity Lines of Credits (HELOC) are a way that can make it so you have options to do either of these. They are fully open so you can pay your mortgage off quick. They are also readvancable so you can take money out anytime and invest it should you find the right thing for you. Most HELOC’s carry an interest rate of prime + 0.50%, which today would be equal to 3.95%.
These are just things to consider. If your goal is to have your mortgage paid out quick, I would never talk anyone out of this. Research all your options with the positives and negatives before you make your decisions. Mortgage Brokers and Accountants will always help educate you when it comes to your Real Estate options.
Thanks for reading
Mortgage Broker – Regional Mortgage Group – Mortgage Alliance