Being a homeowner is almost every person’s dream. However, it involves a lot of responsibility. A mortgage is a significant financial liability. It can force you to rethink your retirement plans, your kids’ college funds, and your summer beach vacation. So it makes sense that you would want to pay off your mortgage sooner. This blog can help you do just that.
12 Ways to Pay Off Your Mortgage Faster
What makes a home? Four walls and a roof? Furniture and fittings? Amenities like Spectrum Double Play? We like to think it’s the amount of effort you put in that makes a home. Of course, that’s a lot of effort to put in, but being a homeowner at the end of it seems worth the trouble. Your mortgage doesn’t have to last decades either. These 10 tips can help you pay off your mortgage in 10 years or less:
- Prioritize Affordability
- Know Your Mortgage Points
- Do the Math
- Manage Other Debts
- Voluntarily Pay Extra
- Cut Expenditures
- Target the Principal Amount
- Leverage Tax Refunds
- Utilize Extra Funds
- Rent Out Extra Space
Let’s take a closer look at these tips below.
Prioritize Affordability
When looking to mortgage a home, its good to coordinate with real estate agent as the bank will need to prequalify you first. That means it will take a look at your financial situation and offer a loan based on that. Many people depend on this number to get a budget for their housing needs. But in reality, the bank is just making an educated guess. You are the best person to look at your budget and decide how much you are willing to pay every month to own a house. In most cases, this is a lot less than what the bank expects you to pay.
Know Your Mortgage Points
Understanding and using your mortgage points is key to paying it off early. Most lenders will offer you mortgage quotes that contain loan interest rates and points. A point is usually equal to one percent of the total loan amount. There are two categories of points. The first is discounts when you prepay interest on your loan. That means the more you pay, the lower the interest rate goes. The second is the origination fee which the lender charges for making the loan. Paying for these points will help you save money on the interest you have to pay for your mortgage.
Do the Math
Crunching the numbers is a very important aspect of paying off your mortgage early. Get the current outstanding balance on your mortgage. Then calculate how much each payment needs to be to pay it off in 5 years. If you have trouble with numbers, you can ask your lender to do the math for you.
Manage Other Debts
When talking about repaying debts, paying off the priciest ones should be your priority. When you pay them off faster, less interest accrues and you save money. The money you save can go towards paying other debts. Personal loans and credit cards usually carry higher interest rates. Therefore, you should prioritize paying them off first.
Voluntarily Pay Extra
Paying extra in advance helps more of each payment go towards paying off the principal amount of the loan. Making an extra payment every quarter can help pay off your loan earlier. If you get a raise or promotion at work, increase your mortgage payments. You can also try making one extra payment each year by dividing it among the twelve other payments. However, be sure to check with your lender if they have prepayment penalties in place.
Cut Expenditures
If you want to pay off your mortgage early, be prepared to make sacrifices to your lifestyle. Living frugally can help you cut expenditures and contribute more towards mortgage payments. If you have a secondary source of income you can live without, divert it to your mortgage. The sacrifice is well worth the end result.
Target the Principal Amount
Many people who don’t understand compound interest can easily end up paying off just the interest during the first few years of their mortgage. Making extra payments or larger ones can help you target the principal amount of the mortgage faster. The more you pay, the less interest you have to pay on future payments. Instead, more of the payment goes towards paying off the capital.
Leverage Tax Refunds
We know that making extra payments helps reduce the term of your mortgage. However, it may not always be so easy for everyone. Luckily, you can leverage your annual tax refund to make one extra mortgage payment every year. One extra payment a year can help knock years off your mortgage term.
Utilize Extra Funds
If you have any extra funds at any time during the mortgage term, use them towards your payments. A graduation gift, an inheritance, a raise, or a bonus are all unexpected windfalls. But instead of thinking short-term, try to utilize them in making extra loan payments. This will help you pay off the principal faster.
Rent Out Extra Space
If you have any extra space in your home, you may want to consider renting it out. Sharing accommodations are nothing new in these times. You can list a spare room on Airbnb, or even the whole home while you are on vacation or traveling. Any money you generate from the extra space should go towards your mortgage payments. However, you may have to make sure your home has everything a person would need. That includes basic utilities, sanitary conditions, and a healthy attitude. If your internet is not up to the mark, consider speaking to other subscribers like Spectrum customers in your area for better options.