Paying off Your Mortgage Early
Owning a home is one of the biggest financial commitments you will make in your lifetime. With that being said, home ownership doesn’t have to be as long of a process as most mortgage terms indicate. If you make a small adjustment to how you're currently paying off your mortgage, you could potentially save thousands of dollars in the long run. Not only that, you could pay off your debt earlier. The following tips can assist you in decreasing the amount of time it takes for you to pay off your home.
5 Tips to Pay off Your Mortgage Early
1. Maximize your down payment – When you're going to buy a home, one of the best things you can do is to put down as much as you can at the time of purchase. This may sound pretty obvious. But it isn’t. Right now, the average amount most homebuyers are putting down is around 8%. But if you want to avoid the Private Mortgage Insurance, which equates to a payment of .5-1% of the entire amount of the loan on an annual basis, you want to put down at least 20%. That way, you are able to avoid giving the bank any extra money over the life of the loan.
2. Refinance to a shorter term mortgage – Most homeowners get a 30 year mortgage when they're purchasing a home. However in the long run, a homeowner ends up paying more over the life of the loan than if they would have gotten a 15 year fixed rate mortgage from the start. If you want to save on the closing costs of refinancing your home, you can pay your 30-year mortgage like it’s a 15-year mortgage.
3. Pay a little more each month – If you've ever been in debt, you understand the concept of over paying the statement balance every month in order to get your payments down. That same thought process can be applied to the mortgage payments on your home. You can get the benefits of paying off your mortgage early without having to go through the refinancing process.
4. One extra mortgage payment a year or switch to biweekly payments – The vast majority of mortgage payments are paid monthly. But if you want to pay off your mortgage early, you could try switching to paying your mortgage every other week or adding an extra payment at the end of the year. Instead of making 12 payments in a year, you would make 13 payments, or pay 26 payments of half the amount of the mortgage.
Not only would you end up paying your mortgage off early, but you would end up saving thousands of dollars in interest. One way to accomplish this would be to save 1/12 of the mortgage payment every month so that you had that extra payment ready to go at the end of the year. Imagine the relief you will have knowing you saved money and payed off your house early!
5. Put your windfalls into the mortgage – We all love getting bonuses, tax returns and raises. Putting some or all of these things into your mortgage can help you pay out your mortgage quickly. If you are serious about taking steps to pay off your mortgage early, then every little bit that you can contribute will help. For instance, if you get a raise at work, you can put that extra money into your mortgage since you are already used to not having it.
Should Everyone Pay off Their Mortgage Early?
Paying off your mortgage early may not be right for your circumstance. Some people are able to make better investments and produce more returns than paying off the mortgage early. If that is you, continue doing what you’re doing. However, if you want to talk to someone that is able to provide some insights to your situation or if you are searching for a real estate agent in Orange County you can trust to assist you with the home buying process, contact me today.
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