How a Home Equity Loan Can Pay Off a Mortgage
If you have a mortgage on your home, you've probably wondered whether it would be worthwhile to pay it down ahead of schedule. If so, you're not alone. The debate over whether to prepay your mortgage has persisted in the personal finances world for some time now, and it's not going away any time soon. The good news is that there are options for each homeowner. You may not have considered it yet, but a home equity loan can be used to pay off a mortgage.
A home equity loan provides a homeowner with immediate access to cash. A home equity loan is a mortgage against the home's equity - basically the amount of the property's value the homeowner owns free of other liens. A home equity loan can be used to pay off an existing mortgage. Many of these equity mortgages have low or no closing costs and a considerably lower interest rate than a conventional loan.
If your mortgage has no prepayment penalty, an alternative to paying it off entirely before you retire is paying down the principle. You can do this by making an extra principle payment each month or by sending in a partial lump sum. This strategy can save a significant amount of interest and pay off the loan much quicker while preserving liquidity and diversification.
Before you make any decisions, first determine if it makes sense to pay off your mortgage earlier. Weigh the emotional impact as well as the financial facts. Paying off debt can bring you a great sense of peace of mind, but it may feel like a risk to part with the cash. Consider a home equity loan to meet in the middle. Make a choice that makes sense to you and your financial situation.
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