Four Reasons to Shorten Your Mortgage in 2012

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Published: 06th November 2012
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Even though mortgage rates are lower than they've ever been, homeowners still view their mortgage agreement the same way -- they're always counting down the years and number of remaining payments they have left.

This can be viewed as a little absurd, considering that most people sell their home and move somewhere else long before the mortgage is paid off -- meaning that they never truly own the home outright.

But if you're not planning on moving anytime soon, why take 30 years to pay off your loan?

Just because that was the original agreed upon length of time doesn't mean you shouldn't consider shortening the length of your mortgage. In fact, it's something you can do in a "typical" refinance (and since refinances are more popular now than ever, you certainly won't be alone!).

Here are five reasons why you should consider it:

1. It saves you money!

Who doesn't like to save money?

Each month, your mortgage payment goes towards the principle (the amount you borrowed) and the interest (the fee the bank charges for allowing you pay them back over time). So, the quicker you pay off the loan, the less interest you pay.

And the less interest you pay, the more money you save!

You can actually save yourself some money on interest WITHOUT refinancing. To do it, all you have to do is make 13 payments in a 12-month calendar year. By making that extra payment, you can reduce a 30-year, fixed-rate mortgage by five years without ever having to renegotiate the actual loan!


2. Interest rates are at all-time lows

Not only are interest rates at all-time lows, but the Federal Reserve announced last month that they plan to keep it that way until at least 2014.

If you purchased your home during the housing boom (before the peak in 2006 and subsequent collapse in 2008), you're probably paying more interest than you need to be. By refinancing, you can get a much lower rate on a 15-year loan. In fact, the rates are so low these days that you may be able to reduce the length of your loan without seeing an increase in your monthly payments!


3. You can do afford to complete the home repair "To Do" list

The quicker you pay off your home loan, the sooner you'll be able to spend that money on something else each month. Imagine the repairs, renovations, and upgrades you can do to your home with the money you're using now to make your monthly mortgage payment!

Then, once those projects are complete, your home will not only be paid off, but its value will increase because of the renovations.


4. A stress-free retirement

While you may not be able to entirely pay off your mortgage tomorrow, if you can shorten it by any length, it will help you have more money down the road. That's especially good news if you're a senior citizen (or will be in a few years).

After all, it becomes harder each year for senior citizens to survive off of their Social Security benefits alone. Retirement packages like 401(K)'s plummeted in value during the recession -- and haven't come back yet. So, the more money you can set aside, the better.

If you can shorten your loan, and complete your mortgage payments BEFORE you retire, you can put the money you would have spent on your monthly mortgage payment money in a savings account.

Even if you can't do that, at least aim to pay off your mortgage BY your retirement date, so you no longer have that financial burden once the paychecks stop coming in.


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