What are the Advantages of Prepaying Your Mortgage?

Written By: Kenneth L. Lahey on February 12, 2010 No Comment

If you have come into some money, such as a bonus or a tax rebate, here is a wonderful way to use it to build your future and save money. If you still haven’t decided what to do with this refund, or any other windfall you may come into, such as a bonus, consider the benefits of prepaying your mortgage.

This is a fairly simple thing that can save you thousands of dollars over the life of the mortgage.

This is one of the easiest ways you can think of to invest in your future, even if you have been considering investing in stocks. Right now, the stock market is a little scary for most people to start to invest in, but your home may prove to be the best investment of your life.

Using any large amount you receive, or even small amounts every month, will cut down your loan balance and save you a lot over the long run.

But even if you have already spent the rebate, or don’t have a lump sum to allocate to prepayment of your home loan, there are other ways to reduce this debt more quickly and save a lot while you do so. Without creating a major impact on your monthly family budget, you can save thousands of dollars on your mortgage.

One way is to add a small amount to each monthly payment; giving up a small luxury, such as a dinner out or your making your coffee at home can give you the funds to make a bigger payment. Since the largest portion of a mortgage is interest, you will be paying this interest off more rapidly. Not only will you reduce the total interest charges, but you will pay off the principal earlier as well if you stuck to this program.

Another way to reducing your mortgage, and this does not involve sending any additional money to the bank, is to pay it more often. Just send one half of your mortgage payment in earlier than due, and the second half on the normal due date. You do not increase the payment, but the extra payment lowers the interest a little bit sooner each month.

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