Pre-Payment of Home Mortgages: to Be or not to Be?

We all have home mortgages and have to pay monthly mortgage payments that put a substantial burden on our budget. And we all want to get rid of that payments as soon as possible. So if your current financial situation allows you to repay you mortgage early, why not go for it? It could be a wise thing to do, if you can afford it, but there are some matters you should account for. Let’s see, what things you should pay special attention to when paying your mortgage off ahead of time.

Advance repayment sounds like a totally good idea both for you and for your lender company, and the common sense says that your lender should appreciate such decision. But the main catch here is that in fact some lender companies don’t want you to pay early. Why? The answer is very easy: they take advantage of the interest you are paying and are willing to extend the interest payment period for as long as possible. That is why, in order to prevent early repayment, some lenders often impose pre-payment penalties on their borrowers, and those penalties can sometimes be even worse than the interest you are paying. Thus the first thing you should do is to check whether your mortgage provides for pre-payment penalties and how large they are, because if this is the case, it would probably be wiser for you to give up the idea of early payment – the game might well not be worth the candle.

Now the second matter: calculate what you will be saving by early repayment, because that’s the way to find out whether pre-payment is worth the effort. Decide how much extra principal payment per month you can afford on top of your usual monthly payment, and then calculate by how much this will reduce your overall mortgage repayment period. Sometimes as little as extra $25 per month can in the end cut your repayment period by two full years. You need to know whether those extra payments are worth your effort and time, so take time to calculate the whole scheme in advance.

Finally, you should do all the planning yourself – at least as much of it as you can. Do not let the lenders decide for you. They might think that they know the matter better than you and might try to tell you what to do, but in fact you are the only one who actually knows your situation. Plan you budget before you go for early repayment and see how much extra you should pay per month and whether you will be able to afford it. Account for all the possible factors – you are the only one able to do this for your particular situation.

Summarizing the above, let’s emphasize that repaying your mortgage as quickly as possible is ideal, but only in case it is done correctly. Use your head, calculate and plan everything carefully and make sure that everything you do with regard to your mortgage is in your best interest, because you surely don’t want to pay more than you have to or end up with holes in your budget.