Can you imagine not having a mortgage? What
would you do with all that extra money each month? If you pay your mortgage off
early, not only do you get to keep more month in your pocket, you could save
significantly on interest payments. In fact, did you know that when you finance
a home for 30 years, you actually end up paying close to twice the amount that
you originally financed?
Take a house that costs $250K, for example. If
you finance it over 30 years at today’s going rates , you will pay about an additional
$180K in interest. So, a $250K home would actually cost you more like
$430K if you pay it off over 30 years.
The good news is that you can reduce this amount
significantly. Using this same example, if you could pay an extra $125 each
month on your mortgage, you could pay off your loan in 25 years and reduce your
interest by a whopping $35K!
Freedom Financial offers these tips for anyone
interested in paying off a home loan early.
1. Consider a 10-year or 15-year mortgage.
A great way to pay your mortgage off fast and
enjoy significant savings in interest is simply to finance it for a shorter
amount of time. 10 and 15-year mortgages typically offer much lower rates, and
because the loan is paid off much quicker there is less time that interest could
accumulate. And even if you are currently in a 10 or 15-year mortgage, you
could still enjoy these savings by refinancing what you still owe into a
shorter period of time. So, if you want to eliminate your mortgage quickly,
this is the best way to do it.
However, Freedom Financial warns that before you
commit to one of these types of mortgages, you make sure that you can afford
it. While these mortgage loans offer substantial savings over the life of the
loan, they also mean much higher monthly payments. So, do the math first before
you commit. Add up all of your expenses, including things that you like
to do (such as travel, eat out, etc.). And make sure you can still afford these
things with the higher monthly mortgage payment. You don’t want to get into the
trap of paying your other expenses with a credit card because there is not
enough money left after the mortgage because that would defeat the purpose.
2. Make bi-monthly payments on your mortgage.
At the moment, committing to a shorter mortgage
may seem like too much, and that is okay. According to Freedom Financial, there
are other ways to pay it down sooner. A bi-monthly payment plan could allow you
to pay down your loan faster, and pay less interest without committing any
additional money to your payment each month. This is a great option for anyone
who cannot currently afford to pay extra towards their home loan.
The way this works is that you split the amount
that you owe each month on your mortgage into two separate payments. Instead of
paying it all once a month, you pay half of the monthly mortgage bill about
every two weeks. You can do this on your own, or to help keep you on track, ask
your lender if they offer a bi-monthly mortgage plan that you could sign up
for. You could end up reducing your mortgage by four years – without paying any
extra towards it!
However, if you do set up this plan through your
lender, check to see if they charge you to do so. Some lenders will add a fee
to your loan for this service.
3. Add extra money to your mortgage payment each month.
A third way that you can pay down your mortgage
is to simply pay extra each month. This allows you to do it on your own terms.
And if there is a season, or month that you simply can’t afford to do so (such
as during the holiday season), you are not committed to it. However, Freedom
Financial does recommend that if you want to take this approach, try to stick
with it.
You could set a goal, for example, to pay off
your loan in 20 years versus the full 30. Determine how much extra you would
need to put towards the loan each year to do so. Then divide it up over the
months of the year that you can commit to paying on it, and stick with it.
Another easy option is to round up your mortgage
each month. For example, if your payment is $1450 each month, pay $1500 instead.
The extra $50 is relatively easy to manage and could mean significant savings
over the life of the loan. If you are on a tight budget and adding to your
mortgage seems difficult, try to find ways to reduce spending in other areas.
Take your lunch to work more often or clip coupons for grocery bill savings. If
you have credit card debt, look for ways to eliminate it so you can apply that
money to your mortgage instead.
Freedom Financial offers a variety of programs
that could help you experience the freedom of living a debt-free life. Contact
us today for more details.
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