Everyone Wants To Pay Off Their Mortgage Sooner
Do you want to pay off your mortgage early? Are you tired of paying your mortgage over a decade and just want to pay it more quickly? If you are one of such persons, then you should definitely read on.
Paying your mortgage for 30 to 40 years is a very daunting feeling for many people out there. When you look at your mortgage statement and see the dreaded numbers, such as “Payoff Date: 2044,” “360 payments,” etc., you would seriously feel very low.
Moreover, you would have taken a loan in your 20s or 30s and you can see that you will have to pay for it till your 50s or 60s. This is very depressing. However, now you can break the 30 year schedule and pay off your mortgage sooner. How? Just follow these 5 ways and accelerate your mortgage repayment clock.
1. Pay an additional 1/12th part each month
When you have made minimum payments of your loan for five years, start paying an additional 1/12th part each month. This means that you must add an additional 1/12th part of the principal and interest of a month to your every monthly payment. When you do this, you can pay off your loan sooner and also save your interest.
You can calculate the 1/12th part by dividing your monthly interest and principal by 12. And, then add this amount to the monthly payment. This will result in 13 payments per year. However, before you pay this additional amount, get in touch with your mortgage provider and tell them that you are making more than the regular payments. Ask them how you can do this, so that your additional payments are properly applied to your mortgage.
2. Refinance with a mortgage of shorter term
When you make the minimum payments of your loan for 5 years, refinance your loans with a shorter term. In other words, take a 15 year or 20 year mortgage and get rid of your 30 year mortgage. This will not only reduce the interest rates on your mortgage, but will also pay off your loan earlier, thus saving your money.
However, before you refinance to a shorter loan term, you must be eligible for a new loan. This means that you must complete the paperwork and pass the credit check and home assessment. Additionally, you must remember that although you will get lower interest rates on a shorter term loan, you will have to make high monthly payments than before.
Plus, this will also reduce your payment flexibility, since if you have less money a month, you will still have to pay for the mortgage. Furthermore, refinancing is only beneficial, when you get a lower interest rate than the old one, as without it all the benefits will remain the same, save for the increase of payment.
3. Make an additional loan payment each year
As soon as you start off making your mortgage payments, pay an additional 1/12th part of one month’s interest and principal each month from the first month itself. This will pay off your 30 year loan sooner and will also save your interest.
This equals to 13 payments in 12 months. You can do this by saving your money round the year and then making an additional payment. When you make 13 payments in a year, you can pay off your 30 year loan sooner.
4. Making a lump sum payment
You can make a lump sum payment of your mortgage. This will pay off your loan sooner as well as save your interest. You can do this by throwing that ‘found’ money towards paying off your mortgage. This ‘found’ money can come in the form of a bonus, tax refund, unexpected profit, etc.
You can use all or some part of this ‘found’ money towards your mortgage. However, this type of payment is irregular and therefore it is difficult to calculate the due date when you will pay off your entire mortgage. Moreover, if you pay higher for your mortgage, then you would not be able to pay for your other needs.
5. Make fortnightly payments
Rather than paying your mortgage every month, opt for fortnightly payments. For instance, if you have to pay Rs. 1000 per month, pay Rs. 500 in every 2 weeks. You would wonder how this will help you. Let me tell you that there are 26 ‘fortnightly pay periods’ per year. This means that you will make an additional month’s payment of your mortgage each year, without you even ‘feeling’ it.
By using all or some of these 5 ways, you may have less money in your pocket, but instead have the peace of mind knowing your largest asset will be completely paid for and you’ll be free to invest your money elsewhere much sooner.