Home Loans California & Arizona

6 Considerations in Prepaying Your California Mortgage

October 1st, 2012 9:54 PM by Nathan Rufty

It is really a good thing to finally be able to own that good home you have been shopping for. After getting your loan and acquiring the home you wanted, the next phase of mortgage takes effect – repayment. It is expected of you to make committed repayment of the California mortgage reliably so that you are freed from the burden. This will most likely be your biggest monthly debt payment to deal with. Prepaying the mortgage is a financial strategy, which helps save you a lot in interest in the home loan. It also has substantial psychological benefits making it a right decision to take. Prepaying mortgage loan also has big financial drawbacks, which is essentially one of the downsides of having a lot of money put in the mortgage as you will be unable to get it back once paid in the event you need it urgency. However, before you embark on your California mortgage repayment, look at these six considerations.

Considerations before prepaying mortgage

Payoff expensive debt first

If you have some expensive debts that have higher interest rates than the California mortgage then it is highly advised that you consider settling them first. This is to avoid accumulation of the loan amount to uncomfortable levels.

Maximize retirement plans

The preferential tax treatment received with qualified retirement accounts and its associated benefits makes it convenient to fund the accounts as a priority other than prepaying the mortgage. According to the Federal Reserve it is a common error among many people as they should fund the retirement account sufficiently first.

Creating emergency fund

Financial planners advice people to have an emergency fund with enough cash for a minimum of 3 months of all your expenses. This is if you have stable income and for 12 months if you are self employed or working on commission in a troubled industry. It is advised that a portion of the emergency fund should be safe and liquid. For instance, money in long term CDs with a high early withdrawal penalty.

Review tax deductions

If the California mortgage is allowing you to itemize the deductions, then it isn’t benefiting you and even the mortgage interest deduction is not benefiting. You can solve it by taking a standard deduction. Consequently, you can consult with a tax professional to find out if retiring early the mortgage will be beneficial.

Get enough insurance protection

Even with the biggest emergency fund, you will not find it adequate in the event you suffer a medical catastrophe. Actually, according to bankruptcy attorneys, medical cases are the lead causes of foreclosure or bankruptcy. Therefore, ensure the medical insurance takes precedence.

Double-checking home value

Do not make extra payments to bring around California mortgage balance, if the mortgage balance does not match the home value. This is because in the event you suffer financial hardship, the mortgage lender is unlikely to gives you help which can result in foreclosure in order to get the money back. This takes away your advantage of getting the home back.

Furthermore, your risks of financial difficulty multiply if you are living in an area that is experiencing high rate of foreclosures, unemployment and declining property/home values. In addition, you are unlikely to have any money for starting all over again.

Choosing when to prepay California mortgage is therefore important. It will ensure that you are stable and not able to be shaken in any way whatsoever.

Posted in:General
Posted by Nathan Rufty on October 1st, 2012 9:54 PM

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