Going back to the example in the previous section, if you had a 30-year mortgage with a 4% interest rate and could pay an extra $500 each month, you could get out of your mortgage 10 years earlier and save around $63,442 overall. If you were to find an investment that could generate an after-tax rate of return (RoR) that is higher than your current mortgage rate, investing could be a better deal. On the other, being debt-free could provide homeowners great peace of mind. On the one hand, given the current low-interest rate environment, investing could be much more profitable than paying off a fixed-rate mortgage with a low rate. Should you pay off your mortgage or invest in the stock market?ĭeciding whether to pay off your mortgage or invest comes down to mathematics and personal choice. A considerable amount of your liquidity will be tied up in your home.Your credit score can take a hit because you'll be closing an account.You'll no longer be eligible for mortgage interest tax deduction.Pay off your mortgage early - Pros and cons As your balance decreases, monthly payments shift to primarily go toward the principal. At first, the majority of your monthly mortgage payments go toward the interest, and anything left over goes toward the principal loan balance. Amortization refers to the process by which you gradually pay off a loan. The majority of fixed-rate loans are amortized. Of course, the results of this calculation will depend on your current mortgage balance. Plus, there’s the added benefit of getting out of debt a full decade earlier than anticipated. In this case, you would pay a total of $109,045 in interest overall, saving $63,442. This would allow you to pay off your mortgage in 20 years instead of 30. Say you increase your monthly payments to around $500. In this scenario, you would pay $172,487 in interest over the life of the loan. Should you decide to do this, it's advisable that you keep cash reserves to cover other day-to-day expenses and potential emergency repairs.īased on calculations using our mortgage payment calculator, if you had a 30-year, $300,000 mortgage with a 4% interest rate and put 20% down, your minimum monthly payment - not including property taxes - would be around $1,146. Depending on the size of your home loan, you could potentially save thousands of dollars in interest by paying off your mortgage early.
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