With most mortgage commitments lasting 20 to 30 years, the financial burden of a monthly mortgage payment can weigh heavily on homeowners. Here are 3 good reasons to pay off your mortgage debt sooner than the bank requires.
Pay for Your Kids’ College Tuition
Imagine being able to pay off your mortgage by the time your kids start college. You would have fewer financial obligations and more cash on hand to help cover college expenses. In 2016, the average college graduate had debts of over $37,000. Even if you only paid part of your kids’ tuition, you could significantly reduce the amount of student loans needed. This strategy could lessen financial stress for your child so that he or she is not burdened with overwhelming debt at the young age of twenty-one or twenty-two.
Reduce Financial Stress During a Tighter Retirement Budget
Housing is one of the largest expenses that retirees incur. The Consumer Financial Protection Bureau says that approximately 6.5 million people aged 65 and over have mortgage debt (that’s 30% of the 65 and over population). Stats from the Federal Reserve show that 21% of seniors still have mortgage debt by the time they reach the age of 75.
Even if you were to pay off your mortgage debt by retirement, you would still face housing costs such as insurance, taxes, and general upkeep. However, being mortgage-free can certainly make your retirement nest egg more secure.
Save Money on Interest
You already know that your lender makes money by charging you interest. As a Charleston SC Realtor, I’ve attended hundreds of closings and can attest to the shock that buyers face when they see exactly how much money they’ll pay in interest over the life of the loan. Even home buyers who have bought four or five homes during their lives experience an unsettling shock when they see the line on their closing statement showing this amount. So how much do you pay in interest over that 30 year period? Even a low interest rate of 4.25% on a $250,000 loan amount will yield about $192,000 in interest over the life of a 30 year loan!
Taking out a home loan is inevitable for most buyers today (especially in our Charleston SC real estate market where median prices are rising quickly). However, paying off that loan doesn’t have to take the original 20 or 30 years you signed up for. If you’re wanting to make a financial goal of paying off your mortgage early, talk with your bank to make sure there are no prepayment penalties. Your bank might also have tools to calculate your mortgage payoff by a certain date so that you can automatically draft the additional amount needed each month in order to reach your goal!