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Housing is a basic need, no dispute about that. Owning a house is a desire that most all of us have. However, most people don’t have the financial capability to own one without the help of a loan. Mortgage loans have played that very important role of bridging the ownership gap. Most new homeowners choose the longest period of time to repay these loans, and while a 30 year loan is pretty standard, it can be very costly over the long run. Looking for ways how to pay off your mortgage faster is something that can help your become debt free sooner rather than later!
Loan repayment being a part of your monthly deduction every month for several years is definitely nobody’s desire. The burden becomes even heavier when you add the interests accruing to that loan.
The desire to offset this mortgage as soon as we can is something that is actually very achievable. Below are a few strategies that you may use to help you pay off your loan faster than you’ve ever imagined, rather than taking two or more decades.
How to Pay Off Your Mortgage Faster
Every dollar you add to your principal payment each month draws down the overall amount of money you to the bank. Even just adding one extra payment each year knocks years off your mortgage!
1. Make an Extra Payment Every Month
From the very first deduction month, make it a habit of adding a few extra dollars to your monthly payment. Even $50 can make a huge difference.
Let’s see how this would practically work. Assume you take out a mortgage of $100,000 to be paid down within 30 years with an interest of 3%. By paying an extra $50 every month, means that you can actually reduce the 25 years by two full years and some months. If you added $100 every month, the repayment period would drastically reduce as you would pay more down and be out of your mortgage by nearly four years early.
The interesting part is that most borrowers have the provision for monthly over payments at no cost. Be sure to check with your mortgage company so that you are able to pay off your loan early. An extra $50-$100 is a pretty easy thing to do as you only have to cut down on miscellaneous expenditures, and you’ll find this strategy viable.
2. Refinance to a Fixed Year Mortgage
Reducing the repayment period to a fixed term through refinancing is a huge stride. This means that apart from shortening the repayment term, you also get awarded a lower interest rate. Also, it will directly affect the total mortgage loan.
Assume you set a fixed period of fifteen years. This calls for confidence in your ability to pay within that period. This strategy will mean paying a higher monthly rate than the usual rate for long term repayment, but will cut your loan terms in half.
If you can swing a 15 year loan, that’s the best way to go to ensure you will own your home in the shortest period of time. However, should financial conditions change; you can always reduce this to a lower monthly rate by getting a longer term loan. As interest rates fluctuate, its a good idea to keep track of the loan terms and payment amounts.
3. Using an All-in-One Mortgage
These All-in-Ones are exceptional loans if you have a surplus if cash coming in. They include offsetting savings against debts and interests charged on the difference only. You pay the loan in a shorter period while doing so at a lower interest rate. Also, you’ll still be able to access your savings anytime you wish to.
The benefit of this is that extra savings translate to a shorter repayment period and lower interest rates. Currently, saving rates are much lower than mortgage rates so its a ideal path to follow.
A majority of financial institutions have this provision. This can be a very appealing option knowing that you’ll spend less time paying back your loan. Although the benefits of this type of loan can be popular for the financially savvy, suitability is still a key concern.
4. Refinance to Lower Rates but Maintain Your Payments
Refinancing your loan is very important especially if you can you find a lower interest rate. The major benefits of doing so are creating a shorter path to completing your mortgage, and you’ll pay less interest over the whole loan period.
When you refinance you can customize the loan amounts and time frames again. If you can- choose the most aggressive time period possible. Though refinancing remains an extra cost, closing costs are much lower than buying a new house. This is because the new interest rate will hopefully be low enough to cancel out much the refinancing cost.
5. Making Use of Windfalls
These are ideal for those who are not able to make use of the previous repayment methods. In case you have inheritances, large bonuses, tax returns, or even benefit to lottery winnings, these could go a long way in shortening the repayment period.
The above benefits present an offer for paying off a huge amount of money at once without any struggle.
These benefits, depending on their availability can be of great help in reducing the period if the mortgage is your first priority.
By paying using the windfalls, you not only shorten the period, but you also save on the interest rates by a substantial amount.
6. Make Biweekly Payments
You can also opt to split the monthly payments in half and pay after every fortnight. This method is very effective in reducing the loan term. If you choose this repayment method, you’ll pay on a shorter period than when you pay on a monthly basis. This, however, depends on the interest rate and mortgage amount.
You may need to work out a plan with your mortgage company prior. Some companies offer this plan to members who enroll for a fee plus a verification and convenience amount. It is also possible to make biweekly payments still even without any enrollment. This is where the lending institution holds the initial payment until the last payment of the month is made.
It is always possible to inquire and consult with the lending company in any grey area to avoid making poor decisions.
7. Minimizing Routine Expenditures
This is perhaps the simplest tactic that we can all use to help us pay down our mortgage loans faster. It is last on my list but not of least importance. The only requirement is discipline.
In order to pay down your mortgage faster, you ultimately need to submit more money monthly. The easiest method is to save more and prioritize where those savings go. Savings and or sacrificing a things (like that extra Starbucks latte or delivered dinner) for two or so years can work wonders for you.
If you saved only $3 daily, this means that you’ll have saved over $1080 in a year. Needless to say, this much money can aid in reducing the period and interest rates too.
This and other small sacrifices can really help in paying off your mortgage loan much faster. Check out these 75 simple ways to save money on a tight budget.
These and other methods are viable options you can choose from if you want to reduce your repayment periods. The bottom-line rests on you the individual guided by your financial conditions. If your income streams are many, paying down more monthly could be ideal for you. If your credit score is high, you may opt to choose the refinancing option. It is also prudent to seek counsel from financial experts when you feel you need expert advice.
Mortgage loans should not hinder anyone from owning the house of their dreams as there are multiple options to choose from. Worth noting is that while paying the mortgage loan, you should set aside some emergency savings. Unplanned situations always arise and its best to be safe if you have some savings set aside. With proper planning though and careful selection of available options, mortgage loan repayment is very simple and manageable.