Debt Repayment - Mortgages

Nothing feels better than paying off debt.  It is a huge load off of our shoulders and our minds.  Debt is one of those things that nags at us, often subconsciously, throughout our daily lives.  It plagues most of us and causes a lot of strife within our relationships. 

We all acquire debt for many different reasons.  Medical expenses are the most common.  Then there is consumer debt – auto loans, credit cards, payment plans, etc.  Mortgages and student loans are big ones too. 

I like mortgages.  That kind of debt is OK in my book because it is a huge investment in your future.  For most of us it is the largest single debt item we will carry but I think it is well worth it.  We all have to live somewhere and what could be better than your own home.  The key is to purchase only as much home as you need and can well afford.  I don’t want to become a slave to my home or my monthly payment.  I have other things to do. 

I don’t like second mortgages or homeowner equity lines of credit (HELOC).  Unfortunately these types of loan arrangements can be difficult to re-pay and most have adjustable interest rates which cause payments to fluctuate.  Many homeowners have found themselves unable to afford to meet these payments when interest rates soared. 

If you have a second mortgage or a HELOC get rid of it.  Refinancing your home may be a good option, especially with the current interest rates so low.  Make sure when you refinance, however, that you are doing so with a fixed interest rate and not an adjustable rate.  Finance for the shortest duration possible or plan for early payoff. 

When I bought my house I personally took out a 30 year fixed rate mortgage, just in case.  I wanted the option of a low house payment in case I was ever laid off from work or had to take a lower paying job.  This actually did happen to me once and I was off work for ten months.  I was grateful to be able to make my monthly house payment while on unemployment without worry.

If you decided to take out a 30 year mortgage plan to add to your monthly payment to reduce the overall length of your mortgage and pay it off sooner.  You will save yourself thousands of dollars in interest.  A simple way to pay off your mortgage early and really impact your savings is by using the power of compounding interest in your favor.  A simple math equation will get you started: 

Take your house payment, divide it by 12 and add that amount to your monthly payment.  For example let’s assume your monthly mortgage payment is $800. 

$800 ÷ 12 = $66.67 + $800 = $867 new monthly payment.

Round up to $870 for even greater impact to savings.  Round up again to $900 and you will be amazed at how that will play out on an amortization calculator.

You can increase your savings and shorten your mortgage even more by adding “balloon” payments periodically throughout the year.  Say every quarter you pay an additional $500 toward your principal or you put all of your tax refund toward it every year. 

Make sure that when you pay your payment that you specify all the extra dollars are paid on your principal.  If you pay your mortgage online there is a place set up to do this.  If you pay by check you will want to specify this request on your payment coupon. 

If you are unable to refinance to get rid of your second mortgage or HELOC then you need to work on it first and pay it off.  The same principals above will help you to accomplish this as well.  Sometimes these loans just need to be paid down so that you can then refinance.  Depending on your situation sometimes it is in your best interest, no pun intended, to just pay off the loans you have and move on. 

Weigh and measure all your options.  Whichever the case may be, it is always a good idea to pay it off sooner than later.