Sugar Land Homeowners: Does Paying Down Your Mortgage Makes Sense?
For millions of Americans, their mortgage payment is one the most significant monthly expenses. It can also be the source of much stress. Paying down your mortgage has always been seen as surefire way to financial freedom for Sugar Land homeowners. The rationale goes that paying down your mortgage helps create home equity and provides a return equal to your mortgage interest rate.
While investing strategies are always changing, paying down your mortgage can be a fundamentally sound investing opportunity for Sugar Land homeowners. Among the benefits, assuming by way of example an interest rate of 4 percent, here are some of the advantages for Sugar Land homeowners who pay down your mortgage:
Guaranteed Return
Paying an additional $100 per month would save $4 a year in interest charges. That’s the same as earning 4 percent, which isn’t bad when savings accounts pay next to nothing and a 10-year U.S. Treasury bond yields just over 2 percent.
There’s a serious compounding effect at play when you pay down your mortgage every month. Your monthly payments include a sum for interest and another for paying off principal. When you reduce the outstanding loan total, future interest charges are smaller. This allows more of each payment to go to reducing the debt, cutting future interest charges even more.
Quicker Equity Build
Equity is the Sugar Land home’s value minus the outstanding mortgage balance, and extra payments increase that value. This is going to mean more money in your pocket when you sell, and also gives you a great position to refinance if you choose to do so.
Building equity in the current Sugar Land home can reduce the amount Sugar Land homeowners would need to borrow for the next one. That in and of itself will be vital as interest rates and mortgage costs are predicted to rise considerably over the next several years.
Reducing Debt
Carrying less debt is almost always a good idea. Every extra dollar put into the mortgage is one dollar less hanging over you. That can make it easier to plan your financial future, whether that’s planning a vacation, saving for college or a new car, or even making home renovations, which will also increase your Sugar Land home’s value.
Furthermore, making extra payments reduces the effective interest over time and can have serious implications for your financial future. Speaking to a financial expert who recommends locking in a 30-year (mortgage) and by making extra payments, you can reduce your interest paid AND maintain flexibility in case you need to make a smaller payment one month.
With most mortgages, it’s easy to add a little something to the regular monthly payment. Most payment forms, whether online or paper, offer a spot for extra payments.
For every $100,000 borrowed, a 4 percent, 30-year mortgage would charge $480 a month. Adding $100 a month would speed up the process, paying off the loan in 259 months instead of 360, and saving the borrower about $23,00 overall in interest.
Whatever your mortgage may be, paying down your mortgage can be a sound financial decision for Sugar Land homeowners. Additionally, the benefits you reap will be paying off throughout the course of your lifetime.
Whether that’s lowered bank rates in the future or having more equity in your home when taking out loans, paying off a mortgage early can make sense. As in all real estate endeavors, preparation today will typically allow for increased returns for tomorrow.