Should you pay off your mortgage early? left
Even with today’s low interest rates, the total amount of interest you may pay over the life of your mortgage can seem like a staggering amount. It's one of the reasons many people set a goal to pay down their mortgages early. But pre-paying a mortgage may not be for everyone. Here are some reasons to consider it:

  • Paying your mortgage off will make you completely debt free.
  • You want to reduce expenses as much as possible so you can put more money into your retirement fund.
  • You live a country, such as Canada, where you do not receive a tax break because you carry a mortgage.
  • You plan to move in a few years and will need cash for your next home - for closing costs or for a down payment. Applying more money towards your mortgage balance will increase equity, which can be converted to cash if needed.
  • Currently, you do not receive a tax break on your mortgage interest. If your mortgage is small, your interest may not exceed the standard deduction the IRS gives non-itemizing taxpayers. Without that tax break, the actual cost of your mortgage is higher.
  • You pay private mortgage insurance (PMI). If you have less than 20 percent of equity in your home, making extra payments will build more equity sooner, allowing you to cancel your PMI. And eliminating PMI will reduce your monthly payments.

But for some people, paying your mortgage off early can hurt you more than help you. Here are reasons to forego pre-paying your mortgage:

 

  • Your mortgage contract includes prepayment penalties.
  • You have other high-cost debts. Credit card interest rates are often more than twice that of most home mortgages. Any extra cash should go toward paying off the balance of those first.
  • You want more money in your pocket now.
  • You are in a high tax bracket and this additional deduction would lower your income tax bracket as well as your taxes.
  • You want to put money into another investment such as the stock market or real estate.

 

 

Government loan programs

FHA loansleft

An FHA loan is insured by the Federal Housing Administration, a federal agency within the U.S. Department of Housing and Urban Development (HUD). The FHA does not loan money to borrowers, rather, it provides lenders protection through mortgage insurance (MIP) in case the borrower defaults on his or her loan obligations. Available to all buyers, FHA loan programs are designed to help creditworthy low-income and moderate-income families who do not meet requirements for conventional loans.

FHA loan programs are particularly beneficial to those buyers with less available cash. The rates on FHA loans are generally market rates, while down payment requirements are lower than for conventional loans.

VA Loansleft

VA guaranteed loans are made by lenders and guaranteed by the U.S. Department of Veteran Affairs (VA) to eligible veterans for the purchase of a home. The guaranty means the lender is protected against loss if you fail to repay the loan. In most cases, no down payment is required on a VA guaranteed loan and the borrower usually receives a lower interest rate than is ordinarily available with other loans.


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