Thursday, September 18, 2014

5 Tips to Pay Your Mortgage Off Fast

For many people, the biggest financial commitment they will ever make is the mortgage on their home. Most of the time, that commitment lasts for 25 years, but many of us

just aren’t comfortable taking it that far. Not only are you in debt for a quarter century, but the interest you pay along the way is ridiculous.

And so, strategies and plans to pay off mortgages fast and avoid these pitfalls were born, and scores of homeowners have benefited. Here are 5 tips that can help get your mortgage out of the way a lot faster than normal.

1. Accelerated Bi-weekly

It stands to reason that paying off your mortgage is all about making the payments, and the difference between monthly and accelerated bi-weekly payments can make a big difference. With monthly payments, you’ll make 12 payments per year, and on the accelerated bi-weekly plan you’ll make 26 payments.

The exact numbers will vary depending on the amount of your mortgage, the amortization and interest rate, but by switching it isn’t unusual to shave a few years off the amortization and up to $20,000 off the amount of interest you pay.

2. Don’t Get Too Comfortable

It’s easy to sit back and get comfortable after you have set up all the details of your mortgage, but that isn’t always a good idea if paying it off early is your goal. This is especially true if the mortgage payment is an automatic withdrawal, because you don’t even have to think about it.

Even if you are in a fixed-rate term, if the rates have dropped significantly, you might be able to save thousands and shorten your amortization even with the penalty you have to pay for breaking the mortgage. Of course, the only way to know this is to stay informed and pay attention to what is going on “out there” in the mortgage world.

3. Boost Payments Whenever Possible

If you anticipate times during your life where you’ll have extra money, or even if you don’t, arrange your mortgage so you can make payments that come off the principal, whenever you like. This might refer to bonuses at work, inheritances, or even increasing your average payments when you get raises at work.

Whenever you get your hands on money that you weren’t expecting, dumping it into your mortgage won’t affect your budget because you weren’t expecting it anyway. Tax refunds and lottery winnings are some other sources or money you probably hadn’t factored into your budget. You certainly don’t have to put every cent you get on the mortgage, but adding different amounts over the course of the loan can make a big difference in the amount you spend and how quickly you pay it off. 

4. Take Advantage of Pre-Payments

Pre-payment privileges are another opportunity to make a lump sum payment and knock a few years off your amortization period. Depending on how much you have available and how much you’re willing to give, you could end up saving the price of a brand new car just in interest. Not to mention, the mortgage-burning ceremony will be sooner. Ask about this option when you are working out your mortgage details, to see if it’s one that applies to you. Even a relatively small sum can make a difference.

5. Knock Some Off at Renewal Time

If you have a 25-year amortization period like so many other homeowners, you will encounter several renewal times during the course of the mortgage. If you saved your money and made a lump sum payment before you renewed the term every five years, you could own the house several years sooner and save yourself thousands in interest, too.

Owning a house is a huge deal for most people, and even though you might feel like you have no choice but to accept whatever terms are laid in front of you, that isn’t always true. You can negotiate and you can shop around and you can knock years off the amount of time it takes for you to own the home outright.

It’s important to keep in mind that lenders all have competition, and even though they seem intimidating and have the power of yes or no over you, they still rely on the business of people like you to survive. If you pass the basic criteria and you know that you qualify for a mortgage, consider some of the above tips when thinking of ways to knock time off your mortgage rate. Not every method is right for every homeowner, but with some creative thinking and some sacrifice, you’ll find one that’s right for you.

Venetia Rose has been a freelance writer and blogger. She loves to share and keep herself updated with the latest tips in mortgage and financial consulting. Her interests are cooking, photography, craft and painting. Follow her on Face book

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