Strategies to Increase Repayment Frequency
Applying for a home loan is usually inevitable due to the high costs of acquiring a house or an apartment. However, nobody will wish to be repaying the mortgage for many years. Prepaying your home loan can shave off thousands of dollars in interest expenses in the course of the actual loan amount. Below are some good measures that you can take that will enable you to pay your mortgage earlier:
Refinancing to a lower interest rate The 3 rd method of reducing the interest costs and paying of the loan balance within the shortest time possible is through refinancing to a lower rate. Mortgage rates change quite frequently and, therefore, even if you refinanced some time ago, you might find yourself in a position to refinance and get a lower rate. Compute for the interest rates to find out whether refinancing is going to have a big impact for good. However, be careful not to incur higher fees, which would offset the value of the lower interest rate.
Make Additional Principal Payments Again, most lenders permit you to make additional payments to be directed towards the actual mortgage principal balance. Avery small extra portion of the principal amount paid on a monthly or annual basis can reduce the repayment period significantly. An additional hundred dollars a month could shave several years off a thirty-year mortgage. Make sure to organize to pay the extra amount every month so that you do not forget.
Reduce Your Monthly Payment Rate by Half and Make the Payment Every Two Weeks Instead of making the full monthly payment once in a month, divide the amount in half and make the payment twice in two weeks. On an annual basis, that is equivalent to making an extra payment per month. It can shave off years of your loan using this simple trick. The only thing you need to ensure is that your lender applies the extra to principal.
Provide More Than The Minimum Every Month To get the most benefits, it is recommended to contribute an amount that is more than the regular monthly mortgage payment as frequently as possible. But if you can’t make it every month, making a double payment whenever you come across some extra cash or bonus can really hurt. Decide just how much more you are willing to contribute in terms of time or money on a monthly or one-time basis.
The fact is, do not pay your property taxes and insurance premiums through a third party or an escrow account. Some of the monthly instalments they ask you to pay include an amount towards an escrow account for items such as property taxes and homeowners’ insurance, which are usually paid annually. Do not pay into escrow, instead pay those bills yourself as and when they arise. It is even better in that it frees up the money to add extra towards the principal of your mortgage.
Looking for another job or working extra hours Earning more money is typically the way to gain the funds needed to pay back debt in the shortest time possible. Having a second job as a pizza delivery boy, an Uber driver, or any other informal employment during your spare time helps to generate more money and apply it to pay off the mortgage balance . Check if overtime is possible in your primary workplace as well. That additional few hundred bucks per month can be the difference.
Offer A Room In Your Home For Lease Many people have idle spaces in their homes, and the best thing they can do is to find a roommate to occupy the space or even rent the room out. Charging rational rent as per the rooms available in your area is quite a good business to have a steady inflow of rental income. Devote all of the earnings towards extra payments towards your mortgage principal monthly.
Reduce Spending And Allocate More To Repay Mortgage It is crucial to take a look at one’s habits and spending and try to identify where they can be reduced. Removing fat from your budget means that you will have more money to pay off your debts. Try to bring your lunch to work instead of buying it, Cut down your cable TV subscription or stop using certain online services that you pay for but do not frequently utilize. Any additional dollar that you can save for extra mortgage payments helps.
Suspend Contributions to Retirement Account for Some Time If you are monthly putting a certain amount towards your 401k or IRA, then it may be wise to put this process on hold for a year. Continue to build up the employer matching funds in your 401k. But spend what you were investing on your own on your mortgage for only one year. Revest in retirement savings once your principal balance has been depleted.
Take Money Out of Your 401k Or IRA Retirement savings should only be used to pay off the debt if all other options are exhausted. If a person withdraws money from an IRA or 401k before the age of fifty-nine and a half, he or she will have to pay a penalty of ten percent on the withdrawal amount along with income tax on the withdrawal. You are also losing future tax-deferred growth, which means that over time, the amount of money you will receive will be far less than the amount you invested in the first place. Therefore, this strategy should be well thought out before being applied.
Borrow Money From Your 401k Or Use Home Equity If you have a sufficient amount of money in the retirement savings account or have enough home equity, you might be able to take a 401k loan or use home equity loan or line of credit with low interest rate. These can help you get a large sum of money to make an additional one-time large payment towards the high-interest portion of the mortgage. However, they do expose your home to risk in case you are unable to pay for the debt.
Liquidate shares of stock or a bond. In case you have taxable accounts including stocks or bonds that you hold for investment, you can be able to sell part of the investment and use the proceeds to deliver a lump sum mortgage payment. This should only be done selectively, cashing out winners so you dont take losses. And especially one should not withdraw the funds which were invested for midterm objectives such as an emergency fund.
This means that one should delay other large purchases until they pay their mortgage because it is a better investment in the future. One should therefore refrain from making any other large purchases during the period they are still repaying their home loan. Wait a few years before making the purchase of a vacation home, RV or boat. Try to keep on maintaining and using your existing car longer rather than purchasing a new one at this time. Do not rush into costly refurbishments of your kitchen or your bathroom at the moment. They can improve their lifestyle later after they finally overcome the mortgage dependence.
Get Rid Of Credit Card Balances and Other High-Interest Debt First Pay off all the non-home loan related debts first as once you have eliminated credit card bills, car loans, and student loans, you can dedicate all your additional earnings towards paying off the home loan. Organize your debts in a list of the interest rate and take a strategy to pay off those debts with the highest rates using the debt snowball or avalanche method. This frees up the ability to contribute thousands more towards your mortgage.
Selling a home and relocating to a cheaper house If for instance, your existing house or condo is beyond your earnings and debt limit, then finding a new one is viable. Selling your current home at the right low mortgage rates, paying the existing home loan, and buying a smaller home to live in reduces the principal. This re-establishes your loan period and the monthly installments at a lower level, which is affordable to pay off the new loan balance promptly.
The key to early home loan repayment is, therefore, consistency. Sustaining these strategies over time and not simply using them for 3-6 months is what delivers big time savings. To sum it up, being relentless about making extra principal payments as well as refinancing when possible is the way to pay off a mortgage much faster.
