Paying $100 more a month can get you mortgage free five years sooner

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Owning a home is one of the biggest investments you can make.

It may also put you in charge of a monthly mortgage payment, but a little extra per month can free you up financially down the line.

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Paying a mortgage earlier will increase cash flow in retirement

In 2020, about 44% of American consumers have a mortgage, according to a recent study by Experian.

There are several reasons to consider paying off a mortgage early.

This can save you thousands of dollars in interest.

The extra money gives you more opportunities to reduce other debts.

The increased cash will help in retirement.

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The interest rate you get on your loan will depend on several factors, including your credit score.

There is no standard rate.

On average, interest rates for a 30-year fixed mortgage ranged from 3.5% at the start of 2022 to 4.47% on March 9, according to TheBalance.com.

Mortgage lenders need to make money and they do so by charging borrowers interest.

This interest will turn what you thought you paid for your home into an even more expensive investment.

For example, if you bought a house for $250,000 and put down a 20% down payment on $50,000, you would have a mortgage of $200,000.

A loan of $200,000, based on a 30-year fixed mortgage with an interest rate of 4.5%, will result in additional interest of approximately $164,813, according to hypothequecalulator.org.

At the end of your 30-year loan, you would have paid $414,813 for a home you bought for $250,000.

If you can pay a little extra for your principal each month, you’ll be able to pay off your mortgage sooner, sometimes saving you years on your loan.

Take a look at our savings guide if you’ve put an extra $100 towards your monthly payment.

Adding a little extra to your principle will allow you to pay off your mortgage faster

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Adding a little extra to your principle will allow you to pay off your mortgage faster

Estimates come from Bankrate’s Supplemental Payment Calculator.

The online tool will allow you to enter all your information to calculate your savings.

In order to find the extra $100, consider cutting back on dining out or buying the extra cup of coffee.

Some people may receive bonuses or birthday money and now would be a good time to set it aside – it really would be a gift to yourself in the long run.

What to keep in mind before prepaying your mortgage

If you’re able to pay off your mortgage sooner than expected, there are a few things to keep in mind as you approach your final payments.

Penalty for prepayment

This may be a clause in your mortgage contract.

A penalty may be imposed on you if you pay off or significantly pay off your mortgage before the term.

This is usually within the first three years of loan inception.

Prepayment penalties serve as protection for lenders against the loss of interest income.

Mortgage lenders are required to disclose prepayment penalties at the time of closing.

Pay off the most expensive debts first

Check what the interest rates are on your credit cards.

In comparison, it can be much higher than the interest on your home loan, which means you pay more in the long run.

Build your emergency fund

Before paying off your mortgage, make sure it doesn’t deplete your savings.

It’s always a good idea to set aside enough emergency funds.

Future plans

If you’re planning to move soon, it may be best to avoid overpaying because you can save your savings for the next house.

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