Paying off the mortgage faster is not difficult if you plan the finances correctly. If you clear off the mortgage early, you will be able to save a lot of your money on the interest. So here lie 5 tips for clearing off your mortgage faster.
Opt For Bi-weekly Payment:
If you have been making a monthly payment, you can switch to a bi-weekly one and pay a half-sized amount every two weeks. Thus if your mortgage payment is $1000 in a month, you can pay $500 every other week. It will also have almost the same impact on the budget as one payment every month. But since there are 52 weeks in one year, a bi-weekly payment schedule will be resulting in 13 complete payments in a year rather than that normal 12. You will be paying an additional amount each year without begging around for additional money. So if have a mortgage of $200000 mortgage for 30 year at a rate of interest of 5%, you should make biweekly payments rather than monthly ones as it would help you to save $34328 in interest and will allow you to clear off the loan almost 5 years early.
Repayment At Higher Rate:
Pay off your mortgage at a higher interest rate of you wish to clear it off early. Avail a loan at possible lowest rate of interest. Add either 2 or may be 3 points to the amount of repayment. So if you take a loan at 4$ and clear it off at 5%, you would not even have a look if the rates rise up. The best thing is that you will be clearing off your mortgage faster and also saving something.
Pay Maximum Down Payment:
Make 100% down payment as it is the best way to buy a home. Paying cash for buying a home can sound strange. But it will be much relaxing if you do not have a mortgage. If you cannot delay the purchase of your home until and unless you can pay the cash, make a plan to at least make 10% down payment. You can also pay 20% if possible as then you will be avoiding paying the private mortgage insurance. It typically ranges between 0.5 and 1 % of the loan amount in a year. For example on a mortgage of $250000, the private mortgage insurance will be costing you $1250-$2500 per year. Remember that the more cash you give away as down payment, the less money will be required for financing. As a result you will have to pay lower money for the mortgage every month. This will make it easier to clear off your mortgage faster.
Refinancing Into A Loan With Shorter Term:
If you have a mortgage for 30 years, you can refinance it as a loan for 15 years. It will be blasting through the mortgage much faster and will give a better rate of interest too. Shorter terms for the loans are typically teamed up with lower rate of interest. Due to the shorter time duration, you will be paying less interest. So the amount that you will be paying on a loan of 15 years will not be double the payments of a loan for 30 years. They will much less. With the help of the mortgage calculator, find out how much you have to pay for a 15 year refinance. So if you see that the payment for such a loan very month is not what you can afford, then avail a loan for 20 years.
Make Use Of A Windfall:
If recently you earned or got some unexpected money may because of inheritance or wedding gift or even due to any unexpected gain in investment, then use the entire amount to clear the mortgage principal. Remember that all lenders and mortgage come with their individual rules of prepayment. Some will let you make monthly double-up payments, while other will let you pay as much as 20% lump sum of your original mortgage principal as prepayment. To prevent yourself from paying any prepayment penalty, go through the mortgage document properly or contact the mortgage lender.
So if you the financial situation to clear off your mortgage faster, then you should consider it. By paying off your mortgage sooner, you will not only be out of debt but will own your home very soon.