You bought a home and now hold a hefty mortgage that you must repay. If you are lucky enough to have extra money to help pay the loan down faster, you may reap some good benefits. Of course, you may be wondering if it’s better to save for retirement or pay your loan down. Here we’ll discuss the benefits paying your loan down faster.
You’ll Save Money on Interest
The faster you pay your mortgage down, the less interest you pay in the long run. If you only make the minimum loan payments each month, you’ll pay your mortgage for the entire term, for example, 30 years. If you look at your loan documents, you’ll see the total amount of interest this mean. Oftentimes it’s in the tens of thousands of dollars. If you pay your loan down faster, though, you can limit how much interest you pay over the life of the loan, saving yourself money in the end.
You Can Retire Without the Burden of a Mortgage
Your housing payment likely makes up a large portion of your monthly expenses. If you are on a fixed income when you retire, having a large loan payment can be stressful. If you pay it off before you retire, though, you can spend your golden years in peace, paying simply for the maintenance and upkeep of your home rather than the loan you used it buy it.
You’ll Have Greater Financial Flexibility Each Month
Having the burden of a mortgage payment each month can be very taxing. If between 30% and 40% of your income goes to your mortgage, it can make it hard to save for anything else. When you pay your mortgage off, you take away that huge burden and give yourself a lot more room within your monthly budget to handle other things, whether that’s saving for a vacation, college tuition, or retirement.
You’ll Receive a Higher Profit When you Sell
If you decide to sell your home, you don’t have to worry about a lender that you have to pay off first. You receive all of the proceeds from the sale, minus any expenses you have to pay as a result of selling, such as transfer taxes and real estate commissions. As the seller, you receive a check for the total amount that’s left after the expenses, you don’t have to worry about any unpaid interest or fees on your mortgage if it’s paid off in full already.
You’ll Have Peace of Mind
There’s something to be said about the peace of mind you will feel when the burden of a mortgage is off your shoulders. You don’t have to worry about how you will come up with the payment or how you will enjoy your retirement when you have this large financial burden on your shoulders. You’ll have the equity in your home to keep as an ‘insurance policy’ should you get into a serious bind, such as experiencing medical issues and need money fast.
Paying off your mortgage isn’t an easy feat. It’s also not something you have to do all at once. You can chip away at as you can, making the most of your money. For example, some people simply pay an extra $100 each month while others make large lump sum payments each year to pay the balance down. You can pay your mortgage as you are able, eventually paying it off.