6 Terrible Mistakes To Avoid When Paying Off Your Mortgage Faster
6 Terrible Mistakes To Avoid When Paying Off Your Mortgage Faster
John Csiszar Tue, May 2, 2023
On the face of it, paying off your mortgage faster sounds like a great idea. You can shorten the time frame that you have to make payments and you’ll save potentially tens of thousands of dollars of interest along the way.
But there are both good ways and bad ways to pay off a mortgage early. If you don’t approach your mortgage prepayment in the right way, you could end up paying much more than you thought, and could potentially even leave yourself in a worse financial situation.
Here are the major missteps to avoid if you’re planning to pay off your mortgage faster.
Putting All of Your Money Into Your Mortgage
If you funnel all available cash into your mortgage, you could leave yourself on precarious financial ground. Imagine a scenario in which you drop every dollar you can into your mortgage, and then the unforeseen happens: You get into a car crash, you lose your job, you have a major home repair or you’re faced with any of countless other emergencies.
With no cash reserves, you’ll immediately fall into debt as you’re forced to borrow to make those payments. In a worst-case scenario, you might not be able to keep up on your ongoing mortgage payments and default, which could eventually lead to foreclosure.
If you’re planning on paying off your mortgage faster, be sure that you both have an emergency fund and that you aren’t siphoning off every last dollar of your monthly cash flow.
Failing To Apply Your Extra Payments to Principal
The best way to pay down a mortgage fast is to apply extra payments directly to your principal. This will immediately reduce the amount of interest you’re paying on your loan every month — albeit just slightly — and it will drag down your principal balance faster.
But if you don’t specify to your mortgage lender that your extra payments are for principal only, it may very well consider those payments to be additional regular payments — in other words, payments are a combination of principal and interest, rather than principal only. This will slow down the payoff of your mortgage.
Using Debt or Other Loans To Pay Off Your Mortgage
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