Due to the recent foreclosure crisis, stories of people sticking out a 30-year mortgage in the same home are becoming rarer by the day. However, this economic crisis has also served as a motivator for people to go all-out in their efforts to become debt free sooner.
If you’re financially secure and free of high-interest debt, then paying off your mortgage early can be a lot easier than you think.
Below are four easy ways to pay off your mortgage early:
Make Additional Mortgage Payments
Whenever you can, it is savvy to begin making extra payments. An advantage of these extra payments is that all that money goes toward the principal balance you we (instead of toward interest).
Even just one extra payment per year year can have a huge impact on the total cost of your mortgage. Even better is the fact that you can make this extra payment any time of the year, and oftentimes, in any amount. Whether you want to put an extra $5 or an extra $500 toward your mortgage, you should be able to use it.
Do you receive any additional income throughout the year? Have you already received your tax refund? You may want to consider applying some, if not all of this additional income to the principal balance of your mortgage. What makes this a great strategy is that you will not be required to make a higher monthly payment and you won’t miss this extra money since you didn’t count on having the money in the first place.
Refinance Your Interest Rate
Have you thought about refinancing your mortgage to receive a better interest rate? A lower interest rate can help you save thousands of dollars in just one year! The amount you save will depend on the exact figures of your mortgage, but over the lifetime of the loan, that could be substantial. Many people fail to refinance because they think their credit isn’t good enough to do it, but it’s always worth exploring the opportunities, no matter how bad your credit score might be.
People, who refinanced their mortgage rates in 2012, lowered their rate by an average of 1.5 percent. For a $200,000 home loan, that translates to savings of about $2,900 in interest payments over a 12 month period, according to Freddie Mac.
If you decide to refinance your mortgage, you will need to get all financial paperwork in order. That means showing your proof of income, tax returns, assets and any investments to your mortgage lender. Having these financial documents in order will help show your lender that you are able to afford your mortgage loan and thus make it easier to refinance your loan.
Cut Unnecessary Expenses
You may want to consider cutting some of your monthly expenses and put the money you save towards your mortgage.
Can you switch to a cheaper cell phone plan? Can you do away with cable TV? Create a budget, list out your living expenses and look for ways you can save money, and then devote that extra money to your mortgage payments.
It may be difficult to cut those living expenses, but it may be worth it considering your goal is to pay off your mortgage and be debt-free!
Make Bi-Weekly Payments
Chances are that you are making monthly payments, which is understandable since the average mortgage is structured for you to make only one payment each month. This payment structure is generally a good thing, since you will make the mortgage payment at the same time each month and it will be easier for you to create your monthly budget.
However, have you ever considered splitting that monthly mortgage payment to bi-weekly payments? Surprisingly, making bi-weekly payments instead of a single monthly payment could save you thousands of dollars and cut years off your mortgage.
By paying half of your monthly payment every two weeks, you will erase almost six years off a 30-year mortgage, according to Bankrate.com.
If you decide to use this strategy remember to contact your lender to change your payment schedule and be aware that there may be a set-up fee to do this. You will also need to remember to have enough funds during those 2 months where you’ll be making three payments instead of two.
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Mortgage rates today can seem high, but if you follow these tips you can end up with a lower interest rate on your mortgage and with thousands of dollars extra in your bank account.
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