4 Tips to Help You Pay Your Mortgage Off Faster
By Jewell Rodgers
You may consider buying a home as one of your most significant achievements in life. The catch is, if you own a house via a mortgage, you'll be paying it for years before you can wholly own it. If you dread the thought of paying monthly mortgage loans for 20–30 years, you can do the following so you can pay your mortgage faster:
1. Paying Bi-Weekly
Usually, mortgage loan payments are due monthly. While following your monthly payment terms will help you avoid late payment fees and other charges, it won't help you pay your loans off any faster. That's why you might want to switch to bi-weekly payments. By understanding loans that your lender offers, you can choose better payment term options. If your lender offers a biweekly payment plan, grab the chance because not all lenders do. Some may allow it, but it comes with early payment fees.
When you pay twice a month, you'll be completing 26 bi-weekly payments in a year. This will amount to full payments of 13 months per year. The effect of 13 monthly payments per year can lower your principal balance at a faster pace. As a result, you'll be paying smaller total interest. For instance, you can shorten your loan term from 25 years to 21–22 years.
2. Refinance Your Mortgage
Aside from bi-weekly payments, you might want to refinance your mortgage. Refinancing allows you to take advantage of the lower interest rates lenders offer. By getting a new mortgage loan to pay for your old mortgage loan, you'll have a mortgage balance. However, before considering this, compare mortgage rates and only do this if the new mortgage loan is lower than the old loan. Also, refinancing should be done if the new loan offers better terms that consider your credit score and your home value.
There are many benefits of refinancing your loan, and one of the most vital is to help you adjust your monthly budget. Some people use it to cash out from their home's value to spend on another property investment or pay off their children's college expenses.
However, you can also refinance to turn your 30-term to the 15-year term mortgage. Although your monthly payment may adjust, it'll be worthwhile because you can pay your mortgage faster. Since refinancing your mortgage is a big deal, you should always ask yourself is it worth it to refinance a home mortgage.
3. Make Extra Mortgage Payments
Another way to pay your mortgage faster is to make extra payments. When you do this, you can save on interest while shortening the length of your loan.
Most mortgage loans calculate interest on your remaining mortgage balance, so paying extra principal payments may reduce the total amount of interest over the term of your mortgage. Moreover, there's a potential that you can shorten your loan payment by 3–4 years with extra payment each year.
There are many ways how you can pay your loans faster and some of which are as follows:
- Lump-Sum Payments: When you have extra cash that you save to make an additional yearly mortgage payment, you can reduce your loan balance faster. In these instances, you should ask your lender if there are no problems by paying lump sums. Most lenders have specific instructions, so verifying will help you avoid complications.
- Monthly Payments: If you prefer monthly payments, don't stick to paying the minimum monthly payment. Instead, add a little extra. You can ask your lender to deduct it from your account or send it manually automatically. By doing this, you can gradually reduce your total loan balance.
- Bonus: Moreover, instead of spending your extra income, like a bonus or paid leaves, use them to pay some of your principal mortgage balance. You'll be surprised how much you can reduce your total loan balance if you keep this a habit.
4. Create Savings
Lastly, you can also create a mortgage offset account. By putting some extra cash on this type of savings, you can reduce or offset your home loan's interest. It's because whatever amount you're saving in a mortgage offset account, it pays down your principal loan amount.
For instance, you save $20,000 USD into your mortgage offset account to offset your mortgage balance of $200,000. Since your remaining balance will be $180,000, the interest rate you'll pay will be on this total balance instead of on the original $200,000.
The more money you save in your offset account, the faster you pay off your loan balance.
Although you may need to tighten your budget for a few years, it'll be worth it because you can pay off your mortgage loan faster. That way, you can concentrate on other aspects of your finances instead of working throughout your life just to pay your mortgage loan. By following the listed tips above, you can save on paying loan interests while shortening your loan contract.
About the author:
Jewell Rodgers is a full-time blogger who regularly produces and publishes content on wealth management on her website. Jewell also submits content talking about the same topic to countless blogs and websites.