How to Payoff Mortgage Early in Half the Time
Tips for Potential Extra Income in Retirement
Sep 2, 2009
Most people can payoff their house in half the time. This gives them the potential for extra income during retirement.
Payoff Mortgage
Many people’s biggest expense is usually their mortgage payment. It’s possible to get rid of one’s house payment (principal and interest) in half the time with only slightly larger monthly payments. This is simply the magic of compound interest and making it work in the favor of the homeowner instead of the mortgage lender.
Half the Time
Here is a simple example:
- A person with a $250,000 mortgage
- 6% fixed loan for 30 years means a payment $1,499 a month
- If the homeowner pays an extra $400 every month ($1,899), the loan would be paid off in 18 years instead of 30 years.
- If this sounds like a lot of money right now, think of it as an investment that is guaranteed to pay off.
Another example:
- If this same homeowner pays an extra $500 a month ($1,999)
- The loan would be paid off in 16 years
- The total savings would be $252,000, which is more than the original purchase price.
These savings come from the $18,000 per year that the homeowner didn’t have to pay during the final 14 years, when he or she owned their home free and clear. A 30 year old man or woman could live rent-free at age 46 for the rest of his or her life, no matter how high other expenses go (though there would always be property taxes).
The potential savings are easy to calculate to fit anyone’s circumstance using a Mortgage Payoff Calculator.
Extra Income
After paying off the house, the extra cash can be used for the children’s education, for travel, or simply to have a house-payment-free lifestyle.
Mortgage Calculator
A homeowner should talk to his or her mortgage company to see if the mortgage has any early payment penalties or other hidden fees. If the mortgage company says there are no penalties or costs, the homeowner should set up automatic extra monthly payments.
There are more benefits once a homeowner (and his or her spouse) is over age 62. There is a potential for extra income for both partners, for life or until both pass away, with a reverse mortgage.
Financial Advisor
Reverse mortgages have their pitfalls, but if the homeowner consults his or her financial advisor, reverse mortgages can be a blessing. The pitfalls vary from lender to lender, but they can include:
- High up-front Fees
- A decision to move to a sunnier climate, after signing up for a reverse mortgage, will mean that the homeowner is out those fees.
- Any inheritance that is left behind will be reduced because the homeowner has used up some of it in the reverse mortgage payments that he or she has received.
Reverse Mortgage
The monthly check that a homeowner would receive from a reverse mortgage will vary depending upon these factors, at the time a reverse mortgage is taken out:
- The Value of the Home
- The Age of the Husband
- The Age of the Wife
Calculations are based on one’s life expectancy, but unlike insurance, the older a person is the more he or she gets.
Following the suggestions above will not only reduce monthly expenses, but at age 62, a reverse mortgage would give the homeowner an income similar to an extra retirement check.
It is important that the homeowner checks with a reputable financial advisor before making changes to their mortgage.
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