Sep 24, 2021 02:06 PM EDT
Benefits of Paying Off Your Mortgage Early in Life
No one is excited about paying off their mortgage each month, but you need to consider the benefits of paying off your mortgage before you retire. The closer you are to retirement, the more important it is to pay off your mortgage. Here are some tips for paying off that mortgage as soon as possible.
What Is A Mortgage?
A mortgage is a contract between you--the homeowner--and a lending agency. Lending agencies can be a bank or a financial company. Within your mortgage contract, there are three figures you need to pay attention to. First, the amount of money you have borrowed--the principal. Second, the interest rate on the amount of money you have borrowed--called the interest rate. Third, the number of months you will have to pay off your loan. Usually, that loan term is 120, 180, or 360 months. All of these numbers are used to determine your mortgage payments.
Your Credit Rating Will Be Higher
Your credit rating is based on several factors. Two factors that weigh heavily on your ability to borrow are the amount of available credit you have, and whether you pay your bills on time. If you are working towards paying off your mortgage, your credit rating will continue to climb, because the actual amount you have borrowed on your home will continue to fall. The higher your credit rating is, the less interest you will have to pay on car payments, and credit card payments. You may even get a discount on your home and auto policies.
You Will Be Able To Get The Most for Your Home
Right now, the housing market is extremely hot in many areas of the country. If your home is in a desirable neighborhood, you may already be getting offers on your home. When your mortgage is paid off, you have a much better bargaining chip with home offers. You can afford to wait for the highest price you can get. That way, if you choose to downsize or move to a location closer to your family, you can get a high price for that paid off home.
You Can Ensure Your Financial Stability
There are several ways you can use your home to help you with your financial stability during your retirement years. First, you may be able to get a reverse mortgage, especially if your home has been paid off. These mortgages are different from a traditional mortgage. You will get a large chunk of money for your home, you will get to remain in your home, and you will not have a mortgage payment. When you die or you move, the mortgage company gets your home. You can see how much you would be able to receive using this calculator here:
You can use the money from a reverse mortgage in different ways. You can take the entire payment for your home as a lump sum, which allows you to invest the money, put it in savings, or spend it immediately. You can also choose to keep the money as a line of credit, which would allow you to do some remodeling on your home. Many retirees ask that the lump sum be split into monthly payments for a constant stream of income. No matter how you choose to use the money, you won't be able to get a reverse mortgage unless your home is paid off.
As you age, so does your home. If you are thinking long term, you may want to do some home improvement projects to make your home a great place for the next homeowner, which will also give you a higher price at the sale. Some people get a home equity line of credit on their paid off home to do a large renovation. Renovations that are practically guaranteed to raise the selling price on your home include the kitchen and the bathroom. These two rooms are the perfect places for an upgrade, because potential homeowners are looking for new and fresh in a kitchen--such as an island--and in the bathroom--a large shower or tub. Spending a little money now may give your home a fresh look and a fresher price.
No matter what time of your life you are in at the moment--the middle years, heading into retirement, or post retirement, you will benefit from paying off your mortgage as early as possible. Paying your mortgage early gives you a lot of flexibility for making financial decisions throughout your life, and allows you to adapt to changes in your life and the housing market. Plus, you may gain a new revenue stream of income in your retirement years, and we can all use more of that.
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