Many homeowners do not know that one way of opening various financial options is by paying off their mortgages faster. If you do not have a monthly mortgage payment, you are likely going to have increased financial freedom, smaller debt, and more income.
There are different reasons for paying your mortgage faster. For some people, it is a part of their plan especially when it comes to retirement. Others are looking for increased security and financial independence.
It does not matter what the reason is. At the end of the day, you will reap all the benefits that come with living in your own house without paying any mortgage.
Here are a few ways for homeowners to pay off their mortgages faster;
Refinance Your Mortgage to a Shorter Term
The most popular home loan among lenders is the 30-year home loan. However, lenders also offer short-term home loans. You can also get a 25, 20, 15, or 10-year home loan as well.
However, it is important to note that the shorter the repayment period, the higher the monthly payments, but the less the interest rate over the loan’s life. You can, however, refinance your mortgage if you want to pay it faster.
Refinancing not only allows you to pay your mortgage faster but also allows you to save a lot of money on interest. You can use this money for other things such as planning for your retirement.
Make Extra Mortgage Payments
This is one of the most popular choices among homeowners. They choose to make an extra mortgage payment, at least one more, every year in a bid to pay off their mortgages faster. But how can you easily make at least one more payment every year?
Well, the best strategy is by trying as much as you can to pay at least half of your monthly mortgage payment every week. This means that you do not have to wait until the end of the month for you to make the entire monthly payment.
By making these bi-weekly payments, you will be adding at least one more complete payment every year. You, however, have to talk to your lender to ensure that they accept bi-weekly payments. In the long run, you will pay off your mortgage faster and maintain good credit.
Extra Principal Payments
You can also pay off your mortgage faster by making extra principal payments. This is simply paying more when you can, not all the time. The good news is that mortgages issued from early 2014 do not charge any prepayment penalties.
It, therefore, means that you are allowed to make extra payments every month or any month that you can. You can also make a lump sum or larger payment every year on your principal without being charged any penalties for early loan repayment.
For instance, if you get an income tax refund, you do not have to save that money or use it for something that might not be profitable to you. Instead, just like most homeowners, you can use that money to make extra payments for your mortgage.
Make a Larger Down Payment When Purchasing
The down payment is the amount of money that you have to pay upfront in cash when buying your new home. It is typically a percentage of the total worth of the house and depending on your lender, it can range from about 3% to 20%.
The amount of money you pay as a down payment plays a very crucial role when calculating your loan term. It also affects the amount of money you will pay every month. Making a larger down payment can help you pay off your mortgage faster.
To understand how long and how much you will be paying every month after making a large down payment for your mortgage, you can use a mortgage calculator. These calculators are very helpful and they let homeowners understand the different metrics of their loans.
Recast Your Mortgage
Recasting your mortgage is the alternative for those who would not like to refinance. Recasting differs from refinancing in that you keep the existing loan. However, you can still pay off your mortgage faster with recasting.
Recasting allows homeowners to pay a lump sum for their existing loan and notify their lender. The lender will then adjust their payoff schedule depending on the new balance. This leads to a shorter loan term.
Most homeowners choose to recast over refinancing because it comes with significantly lower fees. In addition, those with low-interest rates can keep the interest with recasting. Unfortunately, this might not be a good option for those with high-interest rates.
Using these techniques, you will be able to pay off your mortgage faster and achieve the financial freedom that many homeowners only dream of.