When you are young, you have an idea of what your life is going to be. you want a good job, family, a nice car, and a nice home. For me, a home was definitely on the list. A few years ago I got my credit in order and secured enough money for a down payment on a home. I went with an FHA loan at 30 years. It came out to be the best price in terms of what I could afford and how much I had for a down payment. Now, I’m looking at paying off my mortgage early and what that means for me.
Peace of Mind
The best thing paying off my mortgage will give me is peace of mind. If I got ill or become unable to work, having a paid-off home would be a sign of relief as it is my biggest bill. I would only need to be able to cover my basics like food, utilities, internet, and such. In my case, these bills fall around $700 per month. With proper savings already in place, it would not be hard to cover these expenses.
More Money Towards Savings
Additionally, when I pay off my mortgage, I can actively save more than $700 per month in addition to what I already allocate towards my 401k and other investment platforms. While I understand that I will miss out on some compound interest, I do not heavily weigh this as a downside. I have established investment goals that will allow me to retire when I want, without penalty for paying off my mortgage early.
When I pay more towards my principal, I am saving on interest. In the first couple of years you pay into a mortgage, the majority of the funds are going towards the taxes, insurance, and interest fees. A very small portion actually gets paid towards your principal amount. Making extra payments towards your principal will allow you to pay less interest over the loan. Just a few extra payments on your mortgage each year will shave years off your mortgage term. You can also get your payment schedule reissued. This will reflect your extra payments. When you pay down 20% of your loan you can get rid of PMI (Private Mortgage Insurance).