If you are in the situation of being behind on your mortgage and thinking about paying it off early, then you have several good reasons to do so. One is the obvious fact that by paying it off early you avoid paying additional fees to your lender. Another reason is that by paying off your mortgage early you can save up to three hundred dollars a month. The extra money you save could go toward making home improvements or paying off other debts. In short, paying off mortgage early makes sense.
However, there are some fees associated with early payoff of your mortgage that you should be aware of. Late fees will be charged if you are in the early part of your mortgage payment period. Lenders may also charge origination fees, application fees, processing fees and redemption fees. All of these costs can add up quickly.
Be sure to compare and research all of these fees carefully before you accept any loan offers from any lenders. Also be careful of lenders who offer “Payment in Full” or “No Fees” as options for payment. Many of these types of agreements actually contain late fees that are assessed when your loan is converted to a line of credit. For example, if you agree to pay off your loan with a line of credit and the final due amount is not paid in full, then you will be charged an additional fee for this conversion. Be especially careful of agreements that contain “No Payments penalties.”
Another reason why paying off your mortgage early makes financial sense is because of the potential savings you can accrue by converting your loan to a fixed rate loan. By paying off your loan early, you can convert your adjustable rate mortgage into a fixed rate mortgage early. Your lender will likely require you to make one payment each month until your loan matures. After the maturity date, if you decide to refinance your loan, your lender will no longer be able to penalize you for not paying your loan off.
One other reason why paying off your loan early makes financial sense is because the longer you hold your loan, the more interest you will incur on it. If you have been paying your mortgage for several years, then inevitably you will pay extra interest. By paying off your loan early, you can potentially reduce your monthly payments and lower your interest rate. In the long run, you can save thousands of dollars in interest costs. This money can be put aside for a larger purchase, pay down some debts, or save for retirement.
There are benefits to both paying off your mortgage early and refinancing your mortgage. First, it is important to remember that refinancing your mortgage is often more affordable than initially purchasing a new home equity loan. Second, by paying off your existing mortgage early, you avoid extra interest expense on your mortgage. And, if you were considering refinancing anyway, at least you know you are not putting your home in jeopardy by paying off too much of your mortgage. Lastly, by paying off your mortgage early, you can save up to three points on your mortgage interest rate.
One drawback to paying off your mortgage early is that there may be some drawbacks to this plan. First, if you are planning to refinance again in the future, you may need to pay off the entire amount of your original loan. Also, you will lose any prepayment penalties on your first mortgage. If this is important to you, then it may not be worth it.
However, if you are not concerned about saving money, paying off your mortgage early is the best financial option for you. If you want to refinance or sell your home within the next few years, this could be the best option for you to achieve your goals. Refinancing and paying off your existing loan will help to lower your monthly payment and make it easier for you to budget for your future goals. While it may take a bit of extra time and effort, it will be worth it in the long run.