How To Pay Off Your Mortgage Faster
For most of us buying a home is the biggest financial decision we will ever make so it goes without saying that before we sign our name on the mortgage paperwork, we should do a good deal of research to not only find the lowest rates and the best terms, but we need to also determine how to pay off your mortgage faster so we can establish more equity in our home and eventually be free of a mortgage payment all together. This article contains a few tips on how to pay down your mortgage faster and help keep more money in your pocket.
Increase Your Monthly Mortgage Payment
Increasing your mortgage payment each month can not only speed up your mortgage payoff significantly but it will reduce the amount of interest you pay every month on your mortgage. Without confusing the topic with specifics and numbers, the bank charges you for every day that your loan is outstanding, and is typically calculated over a period of 30 years. If you pay back the bank sooner, in 20 years for example, the bank will charge you only for 20 years worth of interest rather than the full 30 years worth. On a mortgage loan of hundreds of thousands of dollars you can save tremendous amounts of money over the course of the loan.
Make Biweekly Mortgage Payments
Biweekly mortgage payments are confusing to some people, but they are really quite simple. Each day your loan is outstanding the bank charges you for interest, and every time you make a payment the amount of principle you owe is reduced by that amount. When you make normal monthly mortgage payments you pay 30 days worth of interest, but when you make a payment every 15 days your principal amount is that much lower at the end of the month, meaning the bank will charge you much less in interest over the long term. It doesn’t sound like much but paying your mortgage biweekly can save you tens of thousands of dollars over the life of your loan. The downside to paying biweekly however is you need to be sure you have enough cash on hand to make your payment every two weeks and this can be a challenge to some homeowners living paycheck to paycheck.
Refinance Your Mortgage Whenever Possible
Over the last few years mortgage rates have reached record lows and if you haven’t looked in to refinancing your mortgage you could be flushing away thousands of dollars. Over the life of a 30 year mortgage, interest amounts to nearly two to three times the value of your home, depending on your interest rate. If you have an opportunity to lock in a lower rate and cut down the amount of interest you pay youd be crazy not to. This is doubly true if you have a variable rate mortgage and plan on staying in your home for a long time. To be fair however, refinancing your mortgage isn’t for everyone though, if you don’t plan on staying in your home for a long period of time the amount the bank will charge you to refinance may not be worth the potential interest savings you will gain by doing so. Be sure to ask your mortgage agent for an amortization schedule before and after the refinance and make sure that you will be saving more than the bank will charge.
As you can see there are a number of ways to pay off your mortgage faster, most of which involve paying more money down toward the principal every month and/or cutting down the amount of interest you pay. Cutting a quarter of a point off your mortgage rate doesn’t sound like a lot but when applied to a $300,000 mortgage and taken over 30 years it can save you over $17,000 worth of interest. I’d say $17,000 is enough motivation to learn how to pay off your mortgage payment faster wouldn’t you?
