Avoid These Mistakes When Paying Off Your Mortgage
Paying off your mortgage ahead of schedule is a dream come true for many homeowners. It means you reach financial freedom quicker and it can help you save money on interest. However, although it sounds like a good idea in theory, there are some pitfalls that many homeowners don’t notice when paying off their mortgage early on their Laguna Beach, CA real estate. Here’s what you should avoid.
- Not putting extra payments toward the principle
Unless you specify that the additional $500 or $1000 every month is meant to be applied to your principle balance, the lender may use it to pay down interest for the next scheduled payment. Be sure to communicate this with your lender so that they understand what you are paying off.
- Forgetting to ask if there’s a prepayment penalty
Mortgage lenders are in business to make money and one of the ways they do that is by charging you interest on your loan. When you pay off your mortgage early, you’re essentially costing them money. As a result, many lenders charge a prepayment penalty. If you have to pay a hefty penalty, you may end up spending more than you save so be sure to ask first.
- Leaving yourself cash poor
Even though you want to pay it off to lift the weight off your shoulders, paying off your mortgage early could backfire. If you don’t have enough cash set aside for emergencies, you could end up in a tight spot if the unexpected happens. Ideally, you will have at least three to six months’ worth of expenses saved before you focus on paying down your mortgage debt.
Need advice on where to begin your home search? The Lynch Group at Sotheby’s International Realty can help you buy a home in a competitive market. Serving Orange County and surrounding cities in California, contact us to find out how we can help you find your dream home!