Paying $100 extra a month can get you mortgage-free five years earlier – how it works

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Buying a home is one of the biggest investments you can make.

It can also deprive you of responsibility for monthly mortgage payments, but a little extra a month can free you up financially.

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Paying off a mortgage early will increase cash flow come retirement.

As of 2020, approximately 44% of US consumers have a mortgage, according to recent research by Experian,

There are many reasons to consider paying a mortgage Soon.

This can save you thousands of dollars in interest.

The extra money gives you more opportunities to reduce other debt.

Increased cash flow will help in retirement.

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The interest rate you secure on your loan will depend heavily on a number of factors, including your credit score.

There is no one standard rate.

On an average, interest rates for 30-year fixed mortgages ranged from 3.5% in early 2022 to 4.47% on March 9. TheBalance.com.

Mortgage lenders need to make money and do so by charging interest to borrowers.

That interest will replace what you thought you paid for yourself. House In an even more expensive investment.

For example, if you bought a $250,000 home and kept a 20% down payment of $50,000, you would have a $200,000 mortgage.

A $200,000 loan, based on a 30-year term mortgage with a 4.5% interest rate, would fetch approximately $164,813 in additional interest based on it. pledgor.org,

At the end of your 30-year loan, you would have paid $414,813 for the home you bought for $250,000.

If you can make a little extra payment towards your principal each month, you’ll be able to pay off your mortgage earlier — sometimes taking years off your loan.

If you’ve set aside an extra $100 for your monthly payment, take a look at our savings guide.

Adding a Little Extra to Your Principle Will Help You Pay Off Your Mortgage Faster

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Adding a Little Extra to Your Principle Will Help You Pay Off Your Mortgage Faster

are inferred Bankrate’s Additional payment calculator.

The online tool will allow you to plug in all of your information to calculate your savings.

To find the extra $100, consider eating out or buying an extra cup of coffee.

Some people may get a bonus or birthday money and this would be a good time to put it aside – it will actually be a gift to you in the long run.

Things to keep in mind before paying off your mortgage early

If you are able to pay off your mortgage earlier than expected, there are a few things to keep in mind as you approach your final payment.

prepayment penalty

This may be a clause found in your mortgage contract.

You could be fined if you overpay or pay off your mortgage significantly before the term.

This usually happens within the first three years of the loan being granted.

The prepayment penalty acts as a protection for lenders against losing interest income.

Mortgage lenders are required to disclose prepayment penalties at the time of closing.

Pay off more expensive debt first

Check to see what the interest rates are on your credit card.

In comparison, it could be much higher than the interest you get on your home loan – which means you are paying more in the long run.

build your emergency fund

Before paying off your mortgage, make sure it doesn’t drain any savings.

It is always a good idea to set aside an adequate emergency fund.

future plans

If you are looking to move soon, it is better to avoid overpaying as you can forfeit any savings for the next house.

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