Mortgage Payment Strategies: Tips for Paying Off Your Loan Faster
With about 90% of all home purchases in the United States financed using mortgages, almost everyone understands the financial load of having one. Paying off a mortgage earlier relieves you of this load and can help you save a lot of money which can provide you with financial stability in the long term. Here are a few things you can do to pay it off earlier.
Make Extra Payments
Extra payments, even a few hundred dollars a month, can reduce your loan term by years. Before doing this, however, check whether your lenders charge a penalty for doing this and repaying your loan earlier. If they do not, save some money for additional mortgage payments. You could put your tax refund, bonuses from work, or other unexpected funds into your mortgage payments.
Remember to inform the lender that the extra payment should go to the loan’s principal and not the interest. If you do not do this, the lender will set that money aside for future monthly payments and will not reduce your principal. When this happens, you will not realize any savings and will not be able to pay off the loan earlier.
Refinancing your mortgage is a good idea if you can reduce your interest rate by over 2%. Doing so entails replacing your mortgage with a new one with a lower interest rate or better terms. Your credit score and financial standing will determine the new interest rate, so it is a good idea to consider refinancing if both have improved since you got the current mortgage.
To see if doing so is possible and the possible savings you might get, you can contact a mortgage loan officer from Delmar Mortgage. In addition to helping you to determine how favorable a new mortgage will be, they will advise you on the best options for your circumstances.
Pay Every Two Weeks
Those currently paying monthly can pay an extra month every year by switching to fortnightly payments. Although the year has 12 months, it has 26 fortnights as it has 52 weeks. This means you get two extra payments amounting to a month’s payment if you pay every two weeks.
Another way to pay for an extra month every year is to take the total you pay for the month, divide that by 12 and pay the extra amount every month. If you add up these fractions, you will have paid for an extra month at the end of the year.
Round Up the Payments
You can pay extra by rounding up your payments to the next $100. For example, you could round up $825 to $900. Although the amount might seem little every month, it will make a significant difference over 20 or even 30 years.
Many people struggle with paying off their mortgage and creating substantial savings simultaneously. In the long term, paying off a mortgage early will give you more freedom as you will be free of that obligation earlier. You also save money by doing this as you avoid additional interest you would have paid otherwise.