The recent turmoil in the housing and financial markets has led many people to wonder where they should invest their money. While the idea of home-ownership as the safest investment people can make has been turned on its head, a home still has many benefits over other types of investments. If anything, the lesson from the Great Recession should be that mountains of debt, whether a mortgage, credit card, or school loans, puts you at a disadvantage when markets change. This article will take a look at why reducing your mortgage time frame and making extra payments is a smart way to save and invest your money.
To begin with, it is important to understand that the extra payments you make on your mortgage should only be for long term savings, and after you have built a 6 month emergency fund. This is not money that you will have easy access to until you sell your home. With that in mind, the next step is to find out how much extra you can pay each month. Armed with an online mortgage calculator, you can quickly see how small payments of $100 to $200 dollars extra each month can save you drastically over the life of the loan. Here are a few of the ways early payments help you:
Builds your Equity
Mortgages give you more leverage on your equity as opposed to renters whose get no benefit from their payments. By paying a little bit more on your mortgage each month, you are growing your equity faster which will give you the option to acquire credit at lower rates with ease as you are viewed as a qualified risk for any lender.
Reduced Amortization Period
As a mortgage payer, keep in mind that the bulk of the amount you are scheduled to pay each month goes to the interest charges. Making extra payments not only significantly cuts down on your principal but also positively impacts your amortization period, and can save you tens of thousands of dollars over the life of the loan.
Better Return Than Savings
Rather than letting your money sit in the bank, opt to add to your mortgage payments when you have money that you will not need access to for many years. Most bank accounts offer less than a 1% interest rate, while your mortgage company is charging you 6% for the loan. That means that making an extra payment will give you a 5% better return than your savings account can offer.
Owning a home takes time, patience, and a huge chunk on your earnings, but by simply preparing ahead of time and paying more than what is required, you can make the experience all the more secured and gratifying.
If you would like a handy online mortgage calculator with taxes included in the computation, then check out MortgageCalculator.org. You will be able to quickly see how making extra mortgage payments can increase your savings and drastically reduce your loan period.
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