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Pay Off Your Mortgage Early

An article from the Chronicle Herald

Everyone wants us to be in debt. Shops want you to take on debt so you will buy more stuff, banks want you in debt for the interest they receive from your loans and governments want you in debt so they can claim credit for a healthy economy. Buy! Buy! Buy!

But let’s not kid ourselves: debt sucks. So if you fall for the hype, there will come a day when you have to start paying for all of those purchases.

There are however, different forms of debt and some have their advantages.

Take mortgages for example. Normally what you are told about mortgages is that they are different from other types of debt because you have got something physically attached to the loan — a property — which will hopefully appreciate over time. A mortgage is seen as an investment, and it is of course, but that is no reason not to pay it off as quickly as possible. Debt, after all is still debt.

Paying an extra 10 per cent per month on your mortgage will save you thousands of dollars in interest charges in the long run and can also do wonders for your emotional and psychological well-being. If a mortgage is over 25 years and you’ve managed to shave off a couple years of that by making extra payments each month, even if you then sell the property, you are doing so from a more confident financial position.

As well as topping up your payments — and this is way easier than it sounds if you make the commitment to do so — you might also consider refinancing to a shorter time period of, say 20 or 15 year mortgage terms. Yes, your payments will be higher each month, but you will be paying them for a shorter length of time. Imagine being mortgage free in only 15 years instead of 25!

If you can’t afford to make higher mortgage payments, another option to consider is biweekly mortgage payments instead of monthly ones. When paying biweekly you will make the equivalent of 26 half-payments, or 13 months worth in a one-year period instead of 12, which is how many you make yearly paying month by month.

If reducing your mortgage term or making biweekly payments seems like too a big commitment, try starting small. If you get a Christmas bonus, for example, it doesn’t mean you have to spend it all at Christmas. If you are smart, you will take a portion of the windfall to put down on your mortgage.

Get into the habit of doing this every time you have a few spare dollars in your pocket and you will be amazed at how quickly you can become mortgage free.

All of the above options amount to the same basic idea; pay down the mortgage principle to decrease the interest paid to the bank over the term of the loan. The options will provide peace of mind in the long run by reducing or ridding yourself of debt.

So once you’re through the initial stress of buying a new home, let the financial dust settle and relax, then think about what options you have to improve and shrink your long-term debt from the mortgage.

I’ll say it again: debt sucks, so don’t get comfortable having it. Winning the lottery is unlikely for most of us, so you need to implement a sound financial plan to reduce your overall debt load as quickly as possible to give yourself the most financial freedom possible.