Tips for Paying off Your Home Loan Sooner

July 18, 2014

Do you ever fantasize about how great it would be to pay off your mortgage? Just thinking about it is enough to put some homeowners into a state of nirvana. You may think that being able to check “make monthly home loan payment” off of your to-do list is an impossible goal. Isn’t that something that only exhausted retirees and .com millionaires can pull off? The truth is that in the race to pay off a home mortgage, “slow and steady” is perfectly capable of winning the race. That pony just needs a game plan:

Extra house payment

Homeowners should try to save up for one extra house payment each year. This will likely require careful planning. It can be handled the old-fashioned way, piggy bank style, as the homeowner squirrels away extra cash in the same way one saves up for a big-ticket item or holiday trip. This is also an ideal means to save money on the interest charges on a home loan.

Make sacrifices

Doing so can result in an impressive amount of extra funds. It will require will power to forgo dining out, entertainment, new clothing items, and the latest electronics or sporting goods, but it is oh so worth it. Learning a few DIY skills such as yard work, house cleaning, mending and pressing good clothing, and home maintenance is another way to save money to put towards a mortgage. Establishing such a pattern will also help a homeowner learn the value of saving, planning ahead and avoiding impulsive purchases.

Paycheck windfall

This occurs for those who are paid on a bi-monthly basis. Due to the number of weeks in each month, there are two months each year when an extra paycheck is received. Rather than running to the mall or buying the latest toy, have the will power to hold on to those extra checks. It is not easy to obtain such lump sum funds!

Pay a little extra each month

We all come into cash unexpectedly and more often than you may think! When we begin to pay attention and set these little cash treasures aside, they can add up in a hurry. Typical examples are credit and debit card rewards, purchase refunds, sales of personal items, income tax refunds and employee bonuses. They may seem insignificant, however, the way these small, extra payments can help depend on the loan balance and interest rate. Making this practice part of your routine will pay off in the long run.

Makea large lump sum payment toward the principal

It is possible to discover the actual totals for the loan’s interest and principal, when you examine the amortization schedule. When a monthly mortgage payment is made, part of it is applied to the amount owed on the loan, which is known as the principal. Another percentage is applied towards paying off the interest on the loan. Because most loans begin with higher interest rates, it often seems like the principal will never be paid off, so applying a little extra cash towards it helps!

Refinance into a shorter term mortgage

Monitor interest rates and then refinance when they are low. Refinancing the terms of a mortgage from a 30-year to a 15-year fixed rate will dramatically shorten the life of the mortgage without significantly increasing the monthly house payment. That’s because when a switch is made to a loan with shorter terms, the interest costs go down and the homeowner can pay more towards the principal each month. If you’re really ambitious and ready to make aggresive payments, you can even refinance to a 10 year mortgage. This will dramatically reduce the loan’s lifespan but prepare for a much higher monthly payment.

Refinance to a lower interest rate

Another approach to refinancing is to go ahead and establish a lower monthly payment in order to take advantage of lower rates. This can be done without changing the loan’s terms. And since you’re monthly mortgage payment obligation will be lower, you can sock away the money saved and use it to pay down the principal once a year with a large lump sum payment.  For more information on refinancing, visit a Step-by-Step Guide to Refinancing.

Withhold your rewards

So you scored big with a lottery ticket, the stock market, made a tidy commission at work or received a better that average annual or holiday (or both) bonus? Rather than treat yourself or the family to a big purchase or vacation, do the right thing and apply those funds towards the balance of your mortgage.

Paying off one’s mortgage may be a long road filled with financial bumps and detours in self-discipline along the way. Those that can forge ahead and successfully pay off their home mortgage stand to reap a variety of rewards including the most priceless of all – peace of mind.

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