By Marcie Geffner
(MCT)—Paying off your mortgage might sound like an ambitious New Year’s resolution, especially if you have recently refinanced into a 30-year term. But it’s still smart for homeowners to give some serious thought as to how they’ll pay off their home loan.
An early mortgage payoff can net substantial interest savings compared to making scheduled payments for 15 or 30 years.
Paying more quickly reduces your housing cost, freeing up that money for other needs and wants, says Ronit Rogoszinski, a wealth adviser at Arch Financial Group in Garden City, N.Y. You’ll still be responsible for property taxes, homeowners insurance, and home maintenance and repairs, but your mortgage payment will disappear.
“Once that money can remain in your pocket, you control that money,” Rogoszinski says. “It’s yours. It’s not going to someone else.”
An argument can be made in favor of allocating more cash to investments instead of eliminating low-cost debt, says Alfred McIntosh, principal of McIntosh Capital Advisors, a financial planning and investment management firm in Los Angeles. But, he says, being mortgage-free can be “a very beautiful thing,” especially for homeowners near retirement age.
Here are six ways to get rid of your mortgage.
—Pay more each month: The simplest way to pay off a mortgage is to add an extra amount, say $50 or $500, to each monthly payment, Rogoszinski says. You shouldn’t sacrifice necessities, such as sustenance or medical care, but putting a little more toward the mortgage can be a good financial habit.
“If you can manage your expenses in a way that an extra couple of dollars goes toward the mortgage, that’s freeing up money down the road sooner rather than later,” she says.
Some homeowners add enough to their payment each month to make one extra payment each year. McIntosh explained the math: Divide one payment by 12 or multiply one payment by 10 percent, and add that to the amount each month.
Make sure the extra money is applied to principal, not interest or your escrow account. Prepaying interest or padding your escrow won’t accelerate your loan payoff date.
—Make extra payments: Making an extra payment in January, December or some other month is more challenging than paying a little extra each month, but the benefits are the same, Rogoszinski says.
“The faster you get rid of your debt, the more cash flow you have, the more things you can do,” she says. “I don’t think there is ever a wrong time to do that.”
One way to make that extra payment less painful is to make payments every two weeks instead of every month. The result is 26 half-payments instead of 12 full payments.
—Pay a lump sum: A gift of money, an inheritance, a bonus or an income tax refund creates another chance to put extra money toward your mortgage. This strategy works best if you don’t have other, more costly debt, Rogoszinski says. “You really want to pay off the most expensive debt you have as fast as possible,” she says.
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