Why You Should Pay Off Your Loan Sooner

March 15th, 2012 by

To most people who own a home, it’s a generally accepted principle that having a mortgage is a normal and healthy debt to carry. After all, very few people have the funds to pay off a loan of that magnitude upfront. However, it’s actually a smart financial decision to start paying off your mortgage early for several reasons.

Debt Servicing as Investment

Most people wouldn’t look at paying off debt as a form of investment because it doesn’t pay dividends or interest. However, depending on the market and your loan, paying off your mortgage early can be a better investment strategy than actually investing the money in stocks, bonds, or other vehicles. 

For example, if your interest rate is 7%, you have to look at your other investments and ask what their guaranteed return is. If it’s less than 7%, as many investment vehicles currently are, then you are spending more on interest on your mortgage than you are earning through investments. It just makes more sense to pay off higher interest loans early so that you spend less on interest.

Mortgage Compounding Works Against You

In savings accounts and investments, compound interest is your friend and earns you more money. When it comes to debt, compound interest means that you’ll pay for your home twice in interest if you make regular payments for 30 years. The good news is that if you make just one extra mortgage payment per year, you can pay off your loan in approximately ten years or less. Even small extra principal payments early in your loan can make a big difference in the length of your loan and the amount of interest you pay.

Peace of Mind and Financial Freedom in the Future 

Making extra payments in the current years will free up your finances in the future. If you build up your equity now, you will have the option to take out a home equity loan in the future for important purchases or investments. 

No matter what your reason, choosing to pay your mortgage off early is a good decision for your financial future. For more information on paying your mortgage off early and other ways you can save money over the life of your loan, contact FBC Mortgage, LLC. Our staff can evaluate your current loan and make sure it is the right one for your housing and financial goals.

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