Should I Pay Down My Mortgage Early?
I keep hearing questions from people here in the Hoboken/Jersey City area who are interested in paying their mortgages off early. Is that a good thing to do, or not? A straight yes or no isn’t possible here. There are some variables that need to be considered.
The first order of business is to read the contract for your mortgage. Is there a penalty for paying it early? How much of a penalty? Is it more or less than you would save on interest if you pay down early? Let’s presume you have established that it would be to your advantage to pay early. How do you go about doing that?
There are several choices of methods for this. Some people simply add a few dollars to their mortgage payment each month, and arrange for it to be applied to the principal. Others will make a half payment every two weeks instead of a whole payment once a month. This works because there are 12 months, but 52 weeks in a year. The calculators can show you how it pays off. Refinancing for a lower interest rate is sometimes an option. You can even do something like take a 30-year loan, but make the payments as if it were a 15 year loan.
Here is a link to a few different mortgage calculators. You can use them to see what is most advantageous to your situation. The key is to educate yourself on the subject because the people who make mortgage loans aren’t necessarily going to volunteer all the pertinent information. They are, after all, in business to make money.
One thing that most experts strongly discourage is taking money from your 401(k) to pay down your mortgage. For one thing, you need to keep your retirement secure, and for another, there are unseen financial repercussions to dipping into the 401 (k) too early.
Of course, if you are just getting ready to buy a condo, you can make sure that the mortgage contract allows for early payment with little or no penalty. You can also set the payment schedule for one that will save you money in the long run. Gather your information, and make a plan.
Would it be to your advantage to pay down your mortgage early?
Edward.