The majority of homeowners wish to pay off their mortgage early. Wanting to be mortgage-free sooner is easier said than done; however, there are some simple mortgage tips that can help you reach your goal quickly.
Make More Payments
Your first option is to pay more frequently, such as accelerated bi-weekly. Most mortgages default to a monthly payment plan. However, by changing to accelerated payments you will effectively make more payments throughout the year and therefore lower interest costs.
For example, if your monthly mortgage payment is $1,000 [12 x $1000 = $12,000/year] you can choose to pay on an accelerated payment plan option every two weeks $500, since there are 52 weeks in a year you will end up making 26 payments, which is one additional monthly payment each year [26 x $500 = $13,000].
Round Up Your Mortgage Payments
Every little bit counts when it comes to increasing your mortgage payment. The more you can pay, the faster you will pay off your mortgage.
Round your mortgage payment to the next $25 or $50 or even $100 increment. For instance if your accelerated bi-weekly payment is $413 round it to $425, $450 or $500. Make sure you budget accordingly, but chances are you won’t miss the $10-90 over a couple weeks time and you will be paying down your mortgage faster.
Make Lump Sum Payments
Whenever possible, take any unexpected lump sums of money and apply it to your mortgage. Since its usually money you were not expecting it likely won’t affect your lifestyle.
Overall this strategy can take years off the life of a mortgage. Especially in the early years. So the sooner you start the better.
Keep Your Payment The Same When Interest Rates Drop
If you have a fixed rate mortgage and interest rates have decreased, when it is time to renew your mortgage consider keeping your payments the same; since less money will go towards paying interest, more will go to paying down the principal.
If you have a variable rate mortgage, and interest rates drop the same thinking applies; keep your payments the same so that more of your payment goes toward paying down the principal of your mortgage.
Increase Your Payments When Interest Rates Increase
If interest rates increase, increase how much you pay each mortgage. This is a must for people in a variable rate mortgage so that you continue to payoff principal. If you don’t, less money will go towards paying down the principal and more towards paying interest-prolonging the time it takes you to pay off your mortgage.
Choose A Shorter Amortization Period
Look to reduce your amortization period. The shorter the period chosen the less interest you will pay. Although your mortgage payments will be higher, you will pay less interest over the course of the mortgage. Re-evaluate the amortization at each time you negotiate another mortgage term.
Consider Refinancing
Today’s interest rates are at historic lows and if you are concerned about the possibility that rates will increase, refinancing your current mortgage may help you save money in the long run.
Generally, homeowners should consider refinancing when:
•Rates are low and the penalty for breaking your mortgage does not exceed the savings available by switching.
•There are additional savings available above and beyond just a lower interest rate. For example, does your current mortgage offer you the flexibility to make lump sum payments, increase your payments or change your amortization period without penalty? If these are features you want but don’t currently have without incurring a penalty then you will want to factor this into your refinancing decision as well.
•You have other, high interest debts (like credit cards), that by consolidating into your mortgage will save you money.
Make The Largest Down Payment You Can
Obviously the more money you put down on your home mortgage the less interest you will have to pay back. Its important to budget when buying a new home and know how much money you should set aside for closing costs and how much you should put towards the down payment.
Use one or a combination of these ideas to pay off your mortgage faster!