Should you pay off your mortgage early?
Should you pay off your mortgage early? That seems like a no-brainer, right?
In some cases, it could potentially be the best option for you. However, if your goals involve investments or growing wealth (which is the goal we should all have), then using those designated funds to invest in other real estate is your best bang for your buck. And, if you don't particularly want to invest in real estate, you can pay off other high balance credit cards or car loans because they typically carry much higher interest rates.
Don't believe me? According to Forbes.com, the average credit card interest rate is 27.81%!!! Yikes!! That means for every $100 you charge, you are paying $27.81 for it. The average consumer in America has credit card debt between $6000-$8000.00. Let's do the math on that:
Minimum monthly credit card payment on $7000 balance - $350 (5%)
Interest paid monthly on $7000 balance - $160
Leaving you paying less than $200 monthly on the balance.
In one year, you will have paid approximately $2400 toward the actual amount owned on the $7000 balance! Almost 1/3 of your payments went to interest.
Let's say that instead of paying down your mortgage, which is locked in at 6.5%, you decide to pay off the credit card early. This will free up $350 a month that you now use to snowball and pay off the next high interest rate debt you have, or you can potentially use the extra money to invest in something else.
You could also invest in rental properties instead of paying of your primary residence, which can provide long term, passive income, or fix and flip type transactions that provide quick profit.
Paying off the high interest rate debt not only helps you breathe a little easier, but it will also help your credit score AND lower your debt-to-income ratio. This is the ratio lenders use to determine how much of your income is related to the debt you have. The lower the DTI ratio is, the better!
If you have a ton of high interest rate debt, you may even consider a cash out refinance or a home equity line of credit against your home to consolidate debt. You can save thousands of dollars by doing that because of the substantially lower interest rate you can lock into with a mortgage loan.
As always, I am here for any questions you may have!
Book a call with me for a credit consultation and interest rate checkup:
Book a call with me for an equity line of credit review, or a cash-out refinance:
Book at call with me for a mortgage checkup:
Real Estate Agents, book a call with me here to find out about more ways I can help your clients with interest rate savings, debt consolidation loans or HELOC's:
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