Using your tax refund to pay down your mortgage can be a good idea. Doing so enables you to save money on interest payments and allows you to take full ownership of your home faster than would otherwise have been possible. Here are some tips on making early mortgage payments that can help you get off on the right foot.
Refinancing
One good way to use your tax refund to pay down your mortgage loan is to refinance the loan and then use the refund as a down payment on your new loan. Doing so can not only enable you to get closer to your goal of full home ownership but also lower the interest rate on your home loan. However, be prepared to provide all the same paperwork you had to show a loan officer in order to get the original first home loan.
Refinancing a loan is a good option if you want to switch from an adjustable-rate mortgage to a fixed-rate loan. It’s also ideal if your credit score has risen significantly since you first applied for a home loan. Naturally, you can’t refinance your home loan every single time you get a tax refund, but doing so at least once could be a wise financial move.
Making Extra Loan Payments
An alternative to obtaining refinancing is to make extra payments on your existing loan. If you go this route, be sure to let your mortgage lender know that the extra payment is towards the principal of the loan, not the loan’s interest rate. You’ll also need to check with your mortgage company to make sure there are no penalties for paying your loan back early. Pre-payment penalties are not uncommon, especially if you are paying back more than 20% of your home loan balance in a single year.
Mortgage Investors Group can provide practical advice and assistance for any homeowner who wants to use a tax refund to pay back a home loan. Get in touch with one of our many branch offices to get personalized advice that can help you make a well-informed decision.
