A mortgage comes as a long-term loan that could be weighing in on your finances and causing a sleepless night. For some people, a mortgage is a non-issue since their home equity is already large enough to offset the balance of the money owned and still leave them with some change. Nevertheless, the need to be aware of what you are getting into regarding various things about mortgages is so important that one wonders why most people are still ignorant. The following are the things you must know about paying off your mortgage, serving as a starter to a wide range of knowledge to help you make the best financial decisions.
It’s Possible and Normal to Pay Off the Mortgage
Many people will assume it’s a fantasy to think about having no debt and a fully owned house. They strive towards this goal halfheartedly since they know deep down they are incapable of making the necessary financial changes to attain it. This idea is likely far from the truth. There are many people than you imagine who have full equity of their homes and no debt despite taking mortgages as everybody else. Once you get this correct notion into your head, you can move on to objectively examine options on the table about clearing your mortgage.
Paying Off the Mortgage Does not Eliminate House-Related Bills
Irrespective of whether you own your own or you are still paying for it; you must pay bills. House insurance and local house taxes are still the responsibility of the homeowner. Neglect of these crucial bills can cause them to accumulate to a point where the relevant authorities auction the house. Therefore, do not calculate your future home-ownership goals and responsibilities without factoring in the maintenance jobs, and the bills to pay on an annual basis.
Committing to Increasing Your Repayments is Best
Amortized home loans as in the case of many Mortgages put the interest payment upfront, with a possible 50-50 split between interest and principal amounts for each monthly repayment. In this case, you might want to get into an arrangement where you commit more money at the start to ensure you pay off most of the principle and interest, to make a difference in the subsequent years. In such arrangements, the interest is on the reducing balance. Thus, if you reduce the balance fast, the interest also drops dramatically.
You Will lose Some Benefits
Paying off your mortgage will remove your tax deduction privilege and might tighten up your liquidity. Mortgages are low-interest long-term loans. Paying them off in a few years would mean that unless you are refinancing, you would need to get into other loan arrangements when you have major financial needs. Thus, paying off without consulting your financial adviser might not be wise depending on the nature of your finances and concerns for your future.
You Might Incur Penalties
Some mortgage loan fine prints may specify prepayment penalties that you should know. Changes in income could also affect your new plans to repay the mortgage. The changes in interest rates could cause you to pay more than you anticipated in the short term.