Applying for a home loan is very popular when buying a house. Nevertheless, it is not very good to be indebted for long as this is often accompanied by high interest rates that increase the total amount that has to be paid. The good news is that there are several ways to pay off your home loan that will help you complete the repayment before the due time. This will reduce the amount of interest you pay and enable you to pay off your mortgage and own the house fully.
Make Extra Mortgage Payments A direct and very effective way of paying off a mortgage early is making extra principal only payments wherever possible. This is making special payments that are over and above the monthly remunerations and are specifically taken to the principal loan amount. If you are able to make that extra 100-200 above the minimum required amount each month for your home loan, it can save you a lot of time and reduce your home loan period to 30 years.
Pay some of your salary through direct deposit and make extra payments on the mortgage once in a while. You probably will not even see this money go amiss with the rest of your daily spending money. However occasional, additional amounts are significant in the lifetime of a loan, that is when the amount is relatively small.
Refinance To A Shorter Repayment Period Adjusting your mortgage by shortening the term of the loan is also another useful approach. If you initially applied for a 30-year mortgage, try to refinance and switch to a 15-year or 20-year mortgage if you can. This will be so because your monthly installments will be higher since the time period is lesser. Though, you are charged way much less interest throughout the entire period the loan is being repaid.
For instance, on a balance of 200000 with an interest rate of 4%, a 30-year mortgage would entail 143000 in interest. However, if you took a loan for the same balance and rate, but with a 15-year mortgage, you would pay only $54000 in interest – almost $90000 less. Take a look at the closing costs to see if refinancing is a good idea. However, cutting down your turn time could help you pay off your home several years ahead of the schedule.
Make Lump Sum Payments One of the most potent ways of acceleration is to make one-time, lump sum payments. Here are some strategies that can be used in order to amass a bigger lump sum of money for paying the principal amount of the mortgage. This could be in the form of a work bonus, tax rebate, inheritance money, or from the sale of other financial assets.
Though, it is possible to get an extra 1000-2000 whenever possible brightens the overall total interest mass significantly. This not only saves a lot of money as you pay your loan in a period of several decades but also saves time. It is very easy to save years in the mortgages repayment if one is able to dedicate irregular windfalls or other forms of lump sum cash to the mortgage payments.
Choose Biweekly Payments Biweekly payments where the borrower pays half of the monthly mortgage for 2 weeks can help in early payment. Every other month you get to make an extra payment towards your monthly payment which in effect is applied directly towards your monthly payment reducing the overall principal balance. This sums up to making one extra full mortgage payment in a year if only you alter your payment frequency.
For a 30-year loan, that means paying one extra month for 360 months which is certainly the added payment for an entire year. Lasting that, it is 30 additional payments that all help to decrease your loan principal. Setup can be automatic through your mortgage lending company. The slightly more frequent payments also help in better cash flow management as compared to quarterly payments. You therefore incur much less in interest charges and are completely out of your mortgage much earlier.
Temporarily Pause Retirement Contributions In cases such as having high interest debt like a mortgage, it can be reasonable to temporarily pause retirement savings if you have a specific plan for it. Plug in the numbers to check whether halting your retirement savings for a short period of 1 to 3 years to pay more on the mortgage can help you eliminate the home loan earlier.
However, this route might not be possible for every person. And you never wish to stay away from retirement saving for too long a time that might affect your future wealth significantly. However, a short break in strategic planning when one is still young without compromising future saving plans can lead to early clearance of the home.
Rent Out A Room It is advisable to let out an additional room, or even a basement, for the specific purpose of earning extra cash in order to put it to good use towards paying off the mortgage. Anything from 500 to 800 a month from a long term tenant or Airbnb can go a long way in terms of profit. Always consider taxes and do not neglect the communication with short-term tenants. However, the application of more living space to produce mortgage only funds is a good accelerator plan.
Withdraw Retirement Account Contributions You’re free to withdraw the contributions to the Roth IRA at any time without incurring taxes or penalties. This is however different from the rules regarding withdrawal of profits. If you are in a position that you need extra cash, you could consider making some lump sum mortgage payments while you have existing Roth contributions. This should only be done once you have put enough money aside in the emergency fund. But you have to have a way to replace money that is taken out from the retirement account. However, if executed properly, this is among the best strategies that can be employed to pay off a home faster.
Increase Your Income This means that, the more cash flow one is generating, the quicker one can clear his or her liabilities. Seek for opportunities to earn extra money even if the positions are temporary. You can work another job at night and during the weekends doing something that interests you such as photography, art, graphic designing, writing, or offering consultancy services in your area of specialization. To some, it is possible to negotiate for an extra 500-1000 per month that would fast track mortgage pay down.
Cut Expenses Scan through your budget carefully and try to identify places where you can cut back on your spending to afford increased mortgage payments. Take your lunch from home instead of going to a restaurant to be served. Downgrade cable TV packages. End gym subscriptions that are not really used and any other monthly subscription services which are not being utilized. Maintain your car in good condition to help you avoid a situation where you will be called upon to use a large amount of money to repair it. Small spending adjustments total hundreds of dollars monthly to be utilized for quicker pay off of debt.
Early paying of the home reduces interest payments by tens of thousands of dollars. Here are some tips which you can follow to become mortgage free as soon as possible by following one or more of them. Discipline and commitment are crucial, but you could potentially cut out years of payments.
