Be mortgage free sooner with these 3 effective techniques. Homeownership offers families a significant amount of peace of mind, but it comes at a high price. It’s rare that someone can afford to purchase their home outright.
Mortgages are considered one of the few forms of debt that is considered a ‘good idea’. A home is one of the few things you can purchase that hold it value and over time can appreciate.
Even so, many homeowners dislike being in debt, even to a mortgage lender. Until your mortgage free, you’re faced with the pressure of having to make payments every month. Fortunately, there are effective techniques you can pay your mortgage off sooner.
Pay Off Your Mortgage Early With Effective Techniques
It is possible to pay off your mortgages faster than the terms of your current mortgage. Accelerated mortgage payment plans are a great option. They allow you to be aggressive in paying down the principal. This technique will save you thousands over the life of the mortgage.
1) Make Payments More Often
The frequency of your payments can make a world of difference. Monthly payments are the slowest way and least impactful way to pay your mortgage off sooner.
Bi-weekly payments mean making 26 payments per year (not 24). This equals pay for an extra month on your mortgage. Considering this option will decrease your principal, and your overall term could become much shorter.
This accelerated payment schedule gives you peace of mind that you’re reducing your principal. Your goal, in the end, should be to reduce the principal as fast as possible.
2) Save up and make extra payments throughout the year
It’s common for institutional lenders such as major banks to allow bi-weekly payments. They may, however, allow you to make additional payments (or multiple payments) each year.
Even one extra payment will make a difference, but if you’re able to make more than one each year you’ll find it adds up fast.
Before making an extra payment, call your lender and ask them to apply the payment to the principal balance, rather than to the next month’s payment’. This is important because of the way mortgages are calculated.
When you take out a short-term loan (for a holiday, or home renovations, for example), you’ll often find that you borrow an amount of money, and the full amount of interest is added immediately. Paying back the loan early might give you peace of mind in that case, but doesn’t save you a lot of money.
Mortgages don’t work like that. Rather, you borrow an amount of money, known as the principal, and every month interest is added. When you make a payment, a portion of it covers that interest, and some more go towards paying off the principal. So, the principal goes down slightly, meaning the next lot of interest to be added is lower.
Any amount of money that you can get directly deducted from the principal, rather than going towards paying off interest, will make a huge difference to how quickly you pay off your mortgage. You can see this by using a mortgage calculator and plugging in different overpayment amounts.
3) A little extra every month adds up
Even if you’re not in a position to make full additional payments to your mortgage, small overpayments each month will still help. Each small overpayment won’t feel like much, but over the course of ten years or more those extra payments will add up to a significant amount of money.
Should you find yourself wishing to move house, those extra payments will still be useful because you’ll have more equity in the property you have now, so you’ll be in a better position to make a downpayment on your new home.
If you’re considering making extra payments, call your lender first to confirm this is an option. Each lender has different effective ways of handling payments. Some lenders only permit extra payments at specific times of the year. Some lenders impose a penalty for early repayment so make sure it possible.
Checking the terms of your mortgage will allow you to work out which repayment schedule works best for your circumstances. Working with your mortgage lender can offer effective techniques to help you become mortgage free sooner.
If you’re looking for a mortgage and aren’t sure which mortgage product is best for your needs. You should consider working with a mortgage broker. Whether you’re a first-time buyer, landlord, or looking for a bridge mortgage or to make home improvements, Mortgage Broker’s Network can help you find a good deal on your loan.