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How to Get the Most from your Home Mortgage?

When you have a mortgage, from time to time you may find yourself facing questions of how to best handle it to get the most from it. For instance, is it better to stick with the original payment schedule so you can continue benefiting from the tax write-off or would you benefit more from trying to pay it down and avoid the interest?

First, let's take a look at the option of sticking with the original repayment schedule and benefiting from the tax write-off. There is no denying that one of the advantages of having a mortgage is being able to write off the interest on your taxes. Even so, you must consider how much you are going to save with the tax write-off in comparison to how much you could save if you eliminated your mortgage and the interest altogether. In almost all instances, you would actually be better off to pay off the mortgage and save the interest payments than continue paying on the mortgage to take advantage of the tax write-off. The interest on the mortgage is usually more than the benefit of the tax write-off.

As a general rule of thumb, if you have a 30 year mortgage and make a 20% down payment, the interest you will pay on that mortgage is twice what you paid for the home with the 20% down payment. What most homeowners fail to realize is that a mortgage loan is amortized, meaning that you pay more toward interest than principal during the first part of the loan term. Consequently, even when you have made payments for 24 years on a 30 year mortgage, you will still only have reached the half-way point on paying off that debt. The remaining half will only be paid off in the last few years of the loan. As a result, the earlier you can pay off that loan the more money you will be able to save in interest.

Another option that some homeowners consider is paying the minimum amount on their mortgage and investing any additional money they might have put toward paying off their mortgage. This does not work out mathematically either. First, you must consider the fact that anytime you invest money, there is a risk involved. Comparatively speaking, when you put that money toward paying off your mortgage, there is far less risk involved. In fact, there is almost no risk involved in paying off your mortgage early. Also, consider the fact that if you have a 5% or 6% rate on your mortgage loan, it can be difficult to match that rate of return on any other investment.

Keep in mind that before you even think about starting to pay off your mortgage, it is important to make sure you have a sufficient amount of money in an emergency reserve fund. This will help to cover any repairs that may pop up unexpectedly as well as help in the event you should become unemployed or be unable to work due to a medical problem. After you have set aside enough money in a reserve fund, the next best strategy is to begin working on paying off your largest debt, which is your mortgage.

You might also consider reducing the overall amount by refinancing your home and changing it from a variable interest rate to a fixed rate or simply taking advantage of a lower interest rate. This can help to reduce the amount of interest you pay on your mortgage loan as well as reduce your overall payments. The key to making this method work is to ensure that you do not start over with another 30 year mortgage. If you have already been paying on your home loan for ten years, replace the existing mortgage with a 20 year mortgage. This will help to accelerate the payments and also usually lower your interest rates.

Also, don't fall into the trap of thinking that just because your mortgage payment is lower you should get by with only paying the minimum due. Unless you are experiencing a financial hardship, take advantage of the opportunity to pay down your mortgage by continuing to pay the same amount as the old mortgage. The extra amount above the minimum due will go directly toward reducing the principal on your mortgage, allowing you to pay off your loan that much faster. Ultimately, this strategy can make it possible for you to shave years and tens of thousands of dollars off your total mortgage loan.



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