21 Tips to Paying Off Your Mortgage Faster
Looking forward to buying your first or next house? In most cases, homeowners don’t have a large lump sum amount to purchase a new house. For that reason, they apply for a home mortgage, which is a type of loan with either a fixed or floating interest rate. Homeowners make monthly contributions to pay off their mortgage loans.
While that sounds convenient, your mortgage journey can easily turn into a nightmare if you don’t plan it right.
Of course, you have other expenditures to take care of too, such as utility bills or your children’s college education. That is one of the reasons why homeowners dread paying off the mortgage.
21 Tips to Pay off Your Mortgage Faster
1. Make Your Home Loan Work For You
Costs are a crucial component of understanding how loans work. Typically, it’s a great idea to minimize costs to pay off your loan efficiently. However, you have to understand that costs are not always easy. Don’t trust in a lending institution that fails to elaborate on the terms and conditions of your loan.
It is your lender’s job to show precisely how your home loan will work for you, as you have to repay not only the amount you borrowed but the interest too.
If you are applying for a home mortgage online, don’t forget to use the mortgage calculator that lets you play with numbers and figures. Once you understand the breakup of all costs associated, you can devise a plan to make your mortgage plan work for you and pay off within this term.
2. Prioritize On Top
Is paying off your mortgage on your priority list? Do you have a source of income to take care of your home mortgage in case you become unemployed or are unable to work? Don’t apply for a mortgage unless you have a plan B to pay the loan off.
3. Figure Out Your Budget
Financial gurus suggest that a homeowner should use the 2 percent rule to determine the amount he can spend on a house. According to this rule, no individual should use more than 28% of his/her monthly income, before taxes, on their mortgage. The remaining percentage of your income goes into other expenses like property taxes, car payments, and student loans.
4. Refinance Your Home Loan
Homeowners can benefit from refinancing options when interest rates fall. This way, you can refinance your existing home loan for another loan for a significantly shorter term. However, the loan does not have much effect on the monthly payment.
You can also choose to refinance into a new 30-year mortgage to lower your monthly payment, but that is not recommended as you’ll end up paying even more interest in total.
5. Pay Off The Principal
When you get a lower interest rate and keep your monthly payments the same, it means that more of each payment goes toward the principal, and this means you’ll pay off the balance sooner and save money in the long run.
The other way to pay off the principal is to pay extra each month. You must specify that you want the extra payment to go towards the principal balance or else it will just go towards your next payment.
6. Make Frequent Payments
Paying extra on your mortgage is a great idea to cut years off your loan. This strategy is sure to save you thousands of dollars in interest charges. However, don’t sign-up for an accelerated payment plan from a lending service that costs hundreds of dollars.
7. Go Beyond The Big Banks
Before choosing the right banks, talk to an experienced mortgage advisor at each bank to make the right home buying decision. You may want to discuss things like terms of service, mortgage offerings, and other questions. You’ll be surprised how much you can save by consulting a mortgage broker to find the best rates rather than a traditional bank.
8. Have An Offset Account
Homeowners can ask their bank to set up an offset account to pay off some of the balance of their mortgage. An offset account is a type of savings account that links to your mortgage. As the name suggests, the account offsets the balance on your mortgage. Plus, you have to pay the interest on the difference between the two.
9. Get To Know Your Entitlements
Many lenders offer special conditions and discounts to people with a particular profession. For instance, some lenders waive the LMI to certified medical professionals and offer a significant head start on paying off their loans.
10. Make Additional Payments
If you have no plan to refinance your loan, keep repaying the mortgage at a higher rate. This extra amount serves as an extra payment to help you pay off the loan sooner. Some lenders all homeowners to sign-up for a biweekly payment option so you can pay more. You can benefit from a program that allows you to make biweekly payments and automatically switch back to a monthly schedule in case your finances change.
11. Eliminate All Other Debts
If you can’t do it on your own, turn to a debt management service or seek help from a financial advisor. You can easily enroll in a debt management plan or credit counseling session to take control of your finances. Most courses and sessions last through four months to six years.
By eliminating other debts, you’ll be able to pay more towards your mortgage allowing you to pay off your mortgage faster.
12. Cut Your PMI
Homeowners can avoid PMI with a piggyback mortgage. How does it work? Let’s say that you want to buy a house for $300,000 but have saved money to pay off a 10% down payment; you can choose a plan which is popular as 80/10/10 agreement.
You take one loan that totals 80% of the entire value of the house, and then a second loan or a piggyback — totaling 80% of the total value of the property, or $240,000 and then a second loan or a piggyback, for 10% of the value, which would be $30,000 in this case. Then, you pay the final 10%, or $30,000, as part of the transaction.
13. Automate Your Payments
Automation continues to revolutionize the financial industry, and there’s no reason why you shouldn’t automate your mortgage payments. It takes little to no ongoing effort to automate your payments, so you don’t have to fight the temptation to deviate from your financial plan.
14. Fund Your Savings
No matter what happens, never stop funding your savings account, irrespective of how small your contribution is. Once you’ve determined your household budget and other bills or entertainment expenses, don’t forget to make regular contributions to your savings account. This fund plays a valuable role when you unemployed or need to pay unforeseen medical expenses.
15. Review The Status Of Your Loan Regularly
It is tricky to acquire and manage a loan but fairly convenient to set and forget your loan. Over time, lenders and banks compete for business and offer valuable benefits to borrowers. Every year, perform a thorough home loan health check to see if there are any offers to provide relief.
16. Consolidate Your Debts
An incredible financial strategy to merge multiple debts into a single debt is called debt consolidation. You can pay off this loan through a management program or a loan. Debt consolidation is a great way to reduce your payments for any high-interest debt such as credit cards or home mortgages.
17. Make A 15-Year Plan
While there are advantages and drawbacks of both 15 and a 30-year mortgage, financial experts recommend choosing a 15-year mortgage plan to save valuable money in the long run. Not only are your interest payments dramatically reduced as you’re paying for 15 years’ worth of interest instead of 30 years, but you can also get a lower interest rate. But you may need to pay a larger monthly payment if you opt for a 15-year plan.
18. Less Eating Out For Dinners
Managing your mortgage is not limited to options such as refinancing. You must change your lifestyle habits if you want to become the proud owner of your house. Say no to midnight pizza cravings and learn to cook interesting dishes using a few ingredients so you can save valuable money and practice healthy eating.
19. Use Tax Savings to Make Extra Payments
Early on in your mortgage, the majority of your payment will go towards interest. The good news about this is that mortgage interest is tax-deductible. This can provide a few thousand extra dollars in the form of a tax refund at the beginning of the year. Instead of using this to splurge on the latest technology or your next vacation, consider making a few extra mortgage payments to drastically decrease the length of your loan. Always remember to make sure that your payments go towards the principal balance!
20. Reduce Your Grocery Spending
Cooking at home doesn’t mean you have to buy endless items. Spending on groceries you don’t use is the worst thing you can do to put dents in your budget. Just buy what you need and stock your pantry every week to avoid making frequent trips to the supermarket throughout the week.
You can also save less by shopping around and using coupons when available. The key here is to only purchase items that you need!
When you prepare your meals ahead of time, you are less likely to order food. There are tons of video tutorials and cookbooks online to help you pack your office lunch by following easy steps. Ordering out can cost you hundreds of dollars per year.
21. Get A Side-Gig To Increase Your Income
Don’t be disappointed if you are having a hard time managing your expenses with your day-job only. Nurture a hobby or learn something new to boost your income. You can also offer tips and services online and build a fan-following to promote yourself through word of mouth. If you know how to play the guitar, teach it online. Professionals from all walks of life can share their knowledge on YouTube and other social media platforms to generate a decent amount of revenue.
Buying a new house is not impossible if you know how to use and pay off your mortgage. Follow our tips to pay off your home mortgage without a hassle. If you are more aware of your retirement timeline, you can choose the most appropriate type of home mortgage to become the owner of your house.