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Overpaying ???


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Overpaying mortgage

If you find yourself in the financial position to do so, making larger than required payments on your mortgage may be a good idea.
Most mortgage loans allow prepayment of any amounts applied directly to the principal balance. While this advanced payment method does not reduce the monthly burden, it does shorten the loan term, which means significant interest savings.
If you are interested in prepaying your mortgage, you should check with the mortgage company about any special instructions for sending extra payments. Typically, coupon books provided by the lender have provisions for such payments.
Conventional loans sometimes carry a 20 or 25 year term option. When such an option is available, choosing one of these makes sense.
If you plan to occupy your home for five years or more, then the reduced term makes sense because you are essentially contributing to your own retirement by working toward a debt free home and you are also building equity with each payment.
If, on the other hand, there is a good chance that you will sell your home in less than five years, you may be better off to stick with the 30 year term or even an adjustable rate mortgage. This is especially the case with government insured loans, which may be more attractive to a potential buyer assuming the mortgage because of the lower monthly payment and equity they offer.
When considering prepayment options, you should also consider the return on your investment. If you make more money than what you save in the interest by investing it elsewhere, it might be wise to do so. If not, prepayment makes financial sense.

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Maria Baran is a licensed Broker with RE/MAX Elite,
7339 S. Cass, Darien, IL 60561
Phone: (630) 810-1900     Fax: (630) 810-1967
REALTORŪ is a Registered Trademark of the National Association of Realtors.