Paying off a mortgage is one of the big tickets on most people’s financial agendas. As a matter of fact, it is the largest amount of debt most people will ever assume. Removing that load a bit early may be quite liberating and very financially rewarding. Paying your mortgage off faster means you pay less interest over the course of the loan and free up serious financial freedom. That might be hard to wrap your brain around, but here’s the good news: there are painless ways you can pay off your mortgage more efficiently and save yourself heaps along the way.
Make Extra Payments
Pay extra mortgage principal whenever you can. The small payments add up and, in time, will make a huge difference. If you happen to be one of the lucky few who will get any type of windfall from a bonus at work or a tax refund, etc., consider putting some or all of that money toward your mortgage.
You can pay extra either of two ways. You might make one big extra payment a year, or you might space it out and make the money extra payments every month. If your mortgage payment is normally $2,000 a month, you could round up to $2,200 a month. That extra $200-minor in most eyes-will add up over the years and decrease the overall amount of interest that you pay.
He would call a few lenders himself and has various mortgage products to choose from, which you wouldn’t know where to start with on your own. This will, therefore, help in getting interest rates that are generally good and bring the whole cost of your mortgage down by quite a margin. For instance, the lower the interest rate, the more significant part of your monthly payment goes toward the principal and not to the interest, hence you can pay off your mortgage sooner. Maybe they would be in a position to advise you with more complex mortgage options-like those sans penalties for extra payments-so you would have ample flexibility to pay off your mortgage earlier.
Refinance to a Shorter Loan Term
Another super popular option for paying off your mortgage is refinancing your home loan into a much shorter term. While most mortgages are set up on a 30-year term, refinancing into a 15-year or even a 20-year mortgage can knock several years off of how long it will take to pay for your house.
The interest rates are lower, so when comparing short-term loans more of each payment goes to pay off the principal rather than out the interest. The trade-off is that the shorter-term mortgage will have a higher monthly payment. Refinancing saves you a great deal of money in interest, therefore enabling you to be mortgage-free much quicker if you have the money for it and are in a good financial position.
You will only refinance your mortgage if, after accounting for all costs and fees associated with the refinancing closing process, the financial benefits derived from refinancing will exceed those costs. Refinancing will be effective if you can stay in your home long enough and recover those costs due to savings from interest.
Avoid Lifestyle Inflation
Lifestyle inflation is what occurs when your spending goes up because of an increase in income. Of course, little beats a raise or a bonus as a good enough excuse to upgrade your car, take some vacations, and blow it on other luxury items. Fighting such temptations can be of greater help in paying off your mortgage much quicker, though. Pay it off faster Once you keep your living expenses in line, applying extra income to your mortgage will let you pay off your mortgage quicker.
For example, if one gets a raise for $ 5,000 a year, he can apply that excess amount to the mortgage rather than spending it on certain discretionary items. This will gradually bring down the outstanding balance over time and, hence, reduce the total interest paid during the life of the loan. This will surely make a great difference if one is so disciplined as to persist with this kind of approach in paying his or her mortgage. Essentially, mortgage brokers act as an intermediary who connects borrowers with the most convenient mortgage products for their financial goals. Be it your first application or refinancing, brokers will help secure better terms, like lower interest rates or more flexible payments that could make the mortgage term shorter.
Pay More to Principal Early On
The thing with mortgages is that they’re all amortized, meaning for the first many years a lot of your payments go to interest and very little to the principal of your mortgage. As time goes into the loan term, more and more of your mortgage payment each month goes toward principal. That being said, one of the ways you can make up for that and try to pay off your mortgage faster is by paying down extra money in principal early into the term of the loan.
Extra payments to the principal early in your mortgage pay down the balance more quickly and reduce overall interest paid. At this point, even small extra payments will save thousands of dollars in interest across the life of a loan.
Windfalls
Whether through inheritance, bonus, or sale of an asset, windfalls are one of those great opportunities to make big payment milestones on your mortgage. As appealing as it may be to use any form of surprise incoming money on things like lavish purchases or vacations, paying off your mortgage may save you literally thousands of dollars in interest and have you debt-free sooner.
In other words, every time you receive an important sum of money, at least a fraction should be allocated to the mortgage principal. The more is paid off, the smaller amount of interest is accumulated and hence possibly sooner than foreseen.
Conclusion
To pay off a mortgage ahead of schedule seems intimidating, but in reality, it can be done easily if the right tool is in hand. Although this will contribute to its own good share of savings in interest, that can basically be accomplished by greatly reducing the time taken to pay off your mortgage: by making bi-weekly payments, paying extra toward the principal, refinancing to a shorter loan term, recasting your mortgage, and wisely using windfalls. Added to this, not giving in to lifestyle inflation and a wee bit of discipline will take you to the place you want to go: mortgage-free. Everything counts, and it all adds up over time in helping get you to financial independence and security much quicker rather than later.