“Can you pay off a mortgage early?” This crucial question is on many a buyer's mind when thinking of purchasing a home. If you'll ultimately be paying off your loan for decades, it would be best to pay it off early so you're not also struggling to pay accumulated interest. Otherwise, if you choose to pay over the years and send out your monthly check, the total amount will be split between principal and interest. Members of a popular online platform explored the choice of paying off a low-interest mortgage. This is what they found.
1. Save for a More Significant Down Payment
“If you're looking to lower the interest on your mortgage, start with a big, fat down payment,” said a platform member. The earlier you start saving for a down payment, the better off you'll be. The amount of down payment you need depends on our mortgage type.
2. Address Any Problems With Your Credit Score Early
The first step towards enjoying a low-interest mortgage is having a good credit score. The best thing about your credit score is you can always take steps to build it up, no matter how low. Talk to your lender to see if you meet the lending threshold, and if not, work with your bank to meet the requirements.
3. Explore Your Debt-To-Income Ratio
This is one of the factors that will allow you to enjoy a low-interest mortgage. “If you have a heavy debt load, it may be difficult to enjoy any loan out there, let alone a low-interest mortgage,” said a second user, “Your lender will find your heavy debt too much to handle. Start paying off your debt slowly before considering a mortgage.”
4. Consider Prepaid Mortgage Points
You can lower your mortgage loan rate by prepaying interest at closing. Usually, prepaid interest comes in the form of mortgage or discount points. One point is equal to one percent of the loan amount. Prepaying will automatically get you a lower rate.
5. Go for a Shorter Loan Term
“By now, we know the longer your mortgage term, the more you'll have to pay in an overall amount,” a third used reminded us. If you're considering a 15-year and 30-year repayment term, go for the shorter of the two. It will mean lowering your interest rate exponentially.
6. Invest Your Money Wisely, Then Pay Off Your Debt
“Put the extra money in a brokerage money market fund like Vanguard, which pays a 5.27% interest. When the balance of that account exceeds the balance on your mortgage, you can make the call on what to do,” said another member. Need we say more? It's essential to consider intelligent investment options that will help you pay off your mortgage and lower the interest rate.
7. Raise Our Income
Raising your income is another excellent idea that not many people think of. It's a move that will put you in a better financial position. It could be as simple as asking for a raise or a higher-paying job. When in a better financial situation, you'll be comfortable knowing you could offset your loan quickly.
8. Think of Buying a House Upfront
Other platform members seemed to think that buying a new house first, when you can afford to put down the cash, is so much better for mental health. Because most people don't want to go through the anguish of debt, it may take a very long time to save for a house, but no matter the years, you'll be able to purchase it upfront.
9. Check Out Different Loan Types
If you think you have found your forever home and want to mortgage it, know there are various available loan types instead of the traditional 30-year fixed loan. Speak to a mortgage advisor, and they'll let you know which loan is fitting and the lowest interest rates you can find.
10. Watch and Wait
Always watch for fluctuating rates in the housing market before applying for a mortgage. As you research, you'll find that you could get low and friendly interest rates for your mortgage. “Time the market,” advised a new house owner.
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In an online financial forum, a user is worried that by paying off their mortgage early, they might have less available money for other things. They're concerned that putting so much money towards the mortgage might limit their ability to comfortably cover their other expenses, which is sometimes called “house poor.” They want to make sure that focusing on paying off the mortgage early won't negatively impact their overall financial situation. His concerns trigger several reactions from other users.
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Source: Reddit.
