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Should I look to pay off my home or finance it through a 30-year mortgage?


Why not do both? If you take out a 30-year mortgage, the required payments each month will be smaller than on a shorter-term loan because there will be more scheduled payments. Having smaller payments will give you some flexibility to deal with cash-flow issues that may arise, but there’s no law that limits you from paying more than you have to in any month, and many homeowners do just that. Here’s why: Say you’ve got a 30-year, $300,000 mortgage at 4.5 percent, about the going rate these days. Your monthly payment will be around $1,520. If you can manage to pay an additional $200 each month, you’ll repay the mortgage in less than 24 years and save more than $59,400 in interest. If you don’t pay the extra $200 in a particular month, then it’s no problem. You’re still paying the required minimum, and you’re still working to pay off the note earlier for each month that you do make the added payment. Just make sure that you tell your bank that each dollar above the required amount is to be credited to the mortgage principal; that will ensure that the interest due in succeeding months is calculated on the lowest possible amount and save you money in the long run.

-Conrad de Aenlle