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Suze Orman  : Ways to Pay Your Mortgage Early

Paying off your mortgage early is something that is certainly not encouraged by the banks, because obviously the longer you pay, the more money they make from you. However there is definitely a huge benefit if you are able to pay your mortgage off early.

Once you have a home that you know that you are going to stay in the rest of your life, it is recommended that you make it your number 1 priority to pay it off as early as possible. In most cases the largest monthly expense that you have is most likely going to be your mortgage. For example, lets say that you have a  $200,000 mortgage at a 30year fixed rate and your paying approximately, $1,200  monthly, how much money do you need in a 401k plan to generate $1,200 monthly after taxes ? Think about it, $ 1,200  a month mortgage payment comes out to  $14,000 a year, which means in the end you’ll need approximately $400,000.00 in a 401K plan at 5% interest that is generating $ 20,000 a year that you’ll pay taxes on, to pay off your mortgage.

Now you can take your money and put it in investments only if they pay off, which can be a risky venture. However here we are in the year 2009 and many of us have put our  money in investments just to watch the stock market drop, and then what do you do ? It is far too risky to invest in the stock market in hopes of using your profits to pay off your mortgage.

Suzie Orman Mortgage Advice

The issue is that most people only keep their home for 7 years and of course the banks know this. That’s why they will charge all of your interest up front in the first few years. So image in the case of a $200,000  thirty year mortgage that you’ve been paying off for the last 20 years, up to this point you will still owe approx $108,000.

So the question is how do we pay off our mortgage early then ?

One of the most common ways is to increase your monthly payments. For example, If you had a $ 1,200 monthly mortgage payment and that was at a 30 year fixed , if you could possibly add another $100.00 a month to your payments , in effect you could reduce your mortgage by 5 years down to 25 years instead of 30 years.

So imagine if you just increased your monthly payments by $150.00 or $ 200.00. that would significantly reduce the term of h mortgage saving your potentially tens of thousands of dollars that could be put towards retirement or a college fund.

Now you may be saying that’s easy to say , but its another reality to actually achieve that. However, in many cases you would be surprised to see that if you really made an effort, you could actually find the extra money just by re prioritizing how you spend your extra cash.  Another thing to note is that you may be able to put more one month over another, but as long as you try to increase your payments as much ass possible, you will be able to reduce the over all cost coming out of your pocket over the years of the mortgage.

It is highly advisable to keep track of all your extra payments to the because the banks may not necessarily keep track for you.

The obvious benefit to paying of your mortgage early is that when you retire, you won’t have any monthly payments to make so there will be more cash in hand. Plus you will not need as much money in your 401k plan because that money was used to pay off the mortgage early.

Another less obvious advantage is that once you reach 62 yrs old and if your mortgage is paid off, then you could always get a reverse mortgage if you wanted to get some extra money for other things.

So in the end it is possible to pay off your mortgage early if you want to make the commitment The benefits of having financial freedom in our later years is something that we will appreciate as opposed to being financially strapped and still having to work to make ends meet. Nobody wants to find themselves in that situation, so now is time to think about how to find ways to pay off that mortgage as early as possible.

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