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Wednesday, January 20, 2016

How to get rid of Mortgage?

 

How to get rid of mortgage?

 

Above all, it provides the security of having an affordable place to live in the event that your income declines. With all of these benefits in mind, it's time to look at the strategies that will help you pay off that mortgage earlier.

1. Make lump sum payments. Depending on the terms of your mortgage agreement, you may be able to prepay your mortgage by making lump-sum payments before the mortgage tenure. But while prepaying, consider costs of closure like prepayment charges or prepayment penalty, if any. If you have certain investment in other avenues, compare post tax return from these to the post tax cost of mortgage. And if you find that the post tax cost of mortgage is more, then it makes sense to prepay the mortgage.

2. Shorten the tenure of your mortgage. You could refinance and change your 20-year mortgage to a 10-year mortgage. Bear in mind, though, that your monthly payments will be much higher.

3. Increase your payments. If your financial situation has improved and you are making more money, you may be able to make higher payments or balloon payments. Most lenders will allow you to increase your payments in this manner with certain restrictions.

4. Refinance at a lower interest rate. If there is a drop in interest rate, you can refinance your mortgage i.e. take loan at a lower interest rate and pay off your existing mortgage. There are many reasons why homeowners refinance their mortgage: to lock in a favorable interest rate, to withdraw equity they've built up in their home, or to pay off their mortgage more quickly.

Advantages of paying mortgage early

Following are some of the benefits of paying your mortgage early:

  • The obvious advantage of paying off your mortgage early is that you will own your house outright and have no more mortgage or housing loan payments to make.
  • The quicker you pay back your mortgage, the less interest money you will actually pay. A mortgage paid over a long period of time can mean you pay almost as much in interest as the loan amount itself.
  • It is better to save your hard earned money for your retirement. If the term of your mortgage ends before your retirement, you can save more money during remaining period of your service for your post-retirement needs.
  • Paying your mortgage early will free up a large proportion of your income to spend on other things.
Home loan borrowers are under obligation to repay loan in accordance with the terms of the loan agreement. Delays or default in repayment result in levy of penal interest, besides spoiling borrower's credit history. It is, therefore, advisable to ensure regular payment of Equated Monthly Installment (EMI). HFCs permit part pre-payment of loan without levy of pre-payment charge. Pre-payment of entire loan, if you can afford to do so, can also be considered if it is advantageous vis-à-vis the costs involved. Decision in this regard should be well thought.      
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