If you have a mortgage, you may be like many others who choose to bury the thought of it deep in the corners of their minds so they don’t have to think about it anymore. All those years of making payments, all that money out of every paycheck – it’s a seriously daunting prospect.
But don’t worry yourself too much over it. Millions of homeowners go through the mortgage process every year and come out just fine on the other side.
And, as you might’ve guessed, there are some pretty clever tips out there to be aware of if you want to learn how to pay off your mortgage faster. So, check out these 10 handy tips to help you cut years (and dollars) off your mortgage!
1. Buy a home you can afford
The first thing you’ll need to do when securing a mortgage is to have a bank pre-qualify you.
When you sit down to determine how to finance a home with your bank, they’ll take a big-picture look at your money situation and give you a number. That number is the amount you’ll probably be able to afford paying back.
Don’t use this number when you’re setting your housing budget. That number is more or less a guess your bank makes, which may or may not accurately reflect your true finances. Take a hard look at your monthly budget and figure out exactly what you want to be spending on housing.
Odds are, it’ll be less than what the bank tells you you’ll be able to afford. So, shop around and get multiple quotes, but always pay attention to what you want out of your monthly payment.
2. Pay more than just the minimum
Any time the opportunity arises, tack on as many extra dollars as you can to your monthly payments.
Every time you pay more than the minimum required payment on your mortgage, that extra money is applied to your principal balance. So many people spend years of their lives paying off nothing but interest when if they were simply paying slightly more each month, they’d be making far more of an overall dent in what they owe the bank.
One of the simplest ways to do this is by rounding up on whatever you’re paying each month. Go up to the nearest amount you can afford that ends in zeroes. It will keep your checkbook cleaner, and will make a big difference when you’re in the home stretch of paying off your mortgage.
3. Make extra payments whenever possible
Seriously. If you have the money, put it towards paying down that mortgage. Once all of your bills have been paid and you have a decent chunk of change left over, toss it over to your lender. Trust me – they won’t complain.
And if you suddenly come into some extra cash, be it through a raise at work or a quarterly/yearly bonus, don’t go to the casino (unless you’re some kind of genius card shark). Think about paying off your debts first, starting with your mortgage.
4. Biweekly payments: how to pay off your mortgage faster (and smarter)
Okay, okay, yes. Paying more is good. Everyone gets that by now, I’m sure.
But, if you’re really, super capable of paying off whatever needs to be paid on your mortgage, you should seriously consider splitting your monthly payment in two and paying on it every two weeks.
When you do this, according to US News & World Report, you can save years off your term as well as a considerable amount of money in the long run. You may also find it could make paying all your other bills easier when there isn’t one large chunk to pay – having instead been broken into and spread out over two smaller payments.
A biweekly payment program helps by adding those extra payments you’re making to your principal balance at the end of every year, lowering your principal by the entire amount of the payment. In other words, you’ll reach your loan payoff date sooner. According to today’s mortgage rates, this can be a shortening of up to 4 years.
5. Choose a lender with a lower rate
It’s a pretty straightforward idea, to be honest, but most people aren’t taking advantage of it.
If your current loan isn’t exactly to your liking – maybe it’s got too many added features that you aren’t happy with or don’t see yourself getting much use out of. Maybe you simply have a standard variable loan that you think could be a little easier on your wallet.
By leaving your current loan behind and taking out another loan at a lower rate, you’ll potentially save yourself years of stress and thousands of dollars. But be smart and check out whatever possible exit fees there may be on your current loan. In the end, opting for a better loan can be one of the best methods to take when considering how to pay off your mortgage faster.
6. Refinance for lower interest rates
Refinancing can offer a lot of great benefits, the primary one being lowered interest rates.
Here’s what you need:
- Proof of income (at least two pay stubs)
- Copies of asset information
- Two years’ tax returns
- Proof of investment
- Other income information
When your lender takes a look at all of this information and determines how you can refinance, you could reduce your current interest rate by up to a full percentage point. When your interest rate is four to five percent, that reduction can mean some serious money saved.
7. Set a specific payoff date
If you really want to know how to pay off your mortgage faster, it’s by setting a payoff deadline for yourself and sticking to it, no matter what. Instead of paying month to month and waiting for your bank to finally call you up and congratulate you on having paid your last bill, take control.
Use a payment calculator online to set a payoff goal that will both be challenging, and doable. Remind yourself that on that date, you’ll be free.
By establishing a date when you want to have your mortgage paid in full, you’ll be able to better plan everything ahead of time. Every bill, as well as every other expense you’ll have over the next several years of paying off your mortgage, can be calculated according to this plan.
And, you’ll be able to make other, happier plans for the bright future once you’re no longer paying off your mortgage.
8. Pay as quickly as possible
Always, always pay on time, and as has been mentioned, as often as you possibly can. It’s true that it can be tempting to opt for that smaller payment every month, but if you do, you may be paying off your mortgage for the rest of your life.
Don’t let that happen. Pay your mortgage off as soon as you’re capable of doing so. You’ll be cutting the total amount of interest you pay and pulling yourself out a debt sooner.
On top of that, a paid-off mortgage means less stress as you age and retire, and the strong sense of accomplishment that comes with successfully paying off something significant in full.
If you have other questions concerning mortgages or are interested in buying or selling in Killeen, Austin, Fort Hood, or other areas nearby in Texas, contact me today. I’d love to learn about your unique situation and help you in whatever way possible!