Buying a home is one of the most expensive purchases you may ever make in your lifetime. Many people see homeownership as a rite of passage into adulthood, while others see it as a financial investment. Whatever buying a home means to you, it’s a huge financial decision that incurs a large amount of debt that can last you for decades. However, you can shorten the loan’s lifespan by learning how to pay back a mortgage quickly!
Luckily, paying off your mortgage early is an achievable goal if you do the right things. Indeed, did you know you can pay one extra monthly payment to achieve this? It’s true!
So, today we will demonstrate how you can sell your home faster! However, before we get to our top tips, let’s discuss whether you should pay off your mortgage and what to consider before you do.
Should you pay your mortgage off fast?
In the past, mortgage rates were relatively low. Nowadays, however, these rates are in the single digits. Thankfully, the days of 18% interest rates are behind us. Some are receiving electricity from suppliers at rates of 2 to 3%. It sounds like a pretty sweet deal. However, interest does accumulate over time.
According to an Experian analysis, the average U.S. mortgage debt was almost $202,284 in 2019. Even if you were to pay only 3.5% in interest over thirty years and $124,720.40 in principal over the life of the loan, you would still pay a lot more in interest than with traditional financing.
That’s a lot of money that could be used for other purposes, like an emergency fund, school funds, buying stocks, and other uses.
But everyone is different. If you have a long list of loans that you are paying off, you may be more focused on other financial objectives. Prioritize your debt and come up with a plan that fits your schedule and budget.
Things to consider before you pay a mortgage off fast
Who doesn’t want to know the best way to pay off a mortgage quickly? Although this is an excellent goal to work toward, there are a number of things you should consider first. You want to make certain it’s the right choice for you and for your long-term goals!
It sounds strange, but it’s true. Some mortgage companies charge a penalty for paying off a mortgage early.
According to Nolo, “a prepayment penalty is a charge that the lender imposes on the borrower if the borrower pays all or part of the loan principal before its due date.” For example, if you pay off your loan, refinance, or sell your home before a certain date, you could be subject to a prepayment penalty.”
Thankfully, federal laws have enacted laws limiting this illegal practice. As a newer loan holder, you are unlikely to fall under these obligations and fees. But it is always wise to check your statements or other notices to make sure your work is correct.
Make sure payment is made toward the principle and not towards the next month’s charge. Otherwise, you’ll just end up with a positive balance on your account, and interest will accumulate onto the principle balance.
You also need to remember to ask your lender whether your additional payment is made toward the principal balance or to future interest. This differs among lenders, so check with each of them. You can have the option to make only a single- and multi-payment on your insurer’s website or on a monthly bill.
How to pay a mortgage off fast: 7 Top tips
Are you ready to pay off your home quickly? Here are some important tips to get you started.
1. Make additional payments
Paying down your house loan faster than normal is the best way to save money. You may also choose to split your monthly payments into biweekly installments. This is where you make exactly half of your monthly contribution every two weeks.
by paying half payments like this, at the end of one year, you would have paid a total of 13 full installments instead of twelve! Even adding one extra mortgage payment would enable you to pay off your home sooner.
2. Save for a significant down payment
Why not stop at 20%? The more you invest up front, the less you pay over time. It is always smart to pay as much as you can upfront.
This decreases the amount of your initial loan payment allowing you to pay off your mortgage more quickly because you only owe a smaller amount. It also saves you a lot of money in interest as well.
Set a goal for 25%, 30%, or much higher; the sky is your limit. It may take you a couple more months or years to save this higher down payment. However, you are unlikely to regret your decision when you see how much you will save on interest payments.
Buying real estate until you can afford to spend a lot of money will save you a lot of money over your lifetime.
3. Stay under budget
Of course, the bank wants to make a significant profit. Offering you a loan that you will not be able to pay back for a very long time, is in their best interest (literally).
There is no need to purchase a house that is far out of your financial reach. Otherwise, the loan will be a substantial cost you will have to bear each month.
Living in a home requires a different set of cost commitments than renting. Compared with paying rent, the monthly mortgage payment might appear affordable. But when you consider the maintenance and furnishing of your house, a lower loan is more practical.
This way you are not in a situation in which you have to choose between maintaining your home and paying your mortgage.
4. Try house-hacking
One of the best ways to pay off a mortgage fast is house-hacking. For example, you can rent out parts of your home to others. This is a house-hacking technique that can be used to pay off your mortgage early.
Airbnb or Apartment.com are excellent websites to advertise your available rooms. Word of mouth and Facebook are other excellent ways to promote your space without spending any more money on advertising. You can make extra money by housing-hacking. You can use this money to buy additional mortgage payments!
5. Automate your mortgage payments
According to Brian Davis, co-founder of SparkRental, handling your payments efficiently is the best way to pay a mortgage off quickly. Setting up automatic bi-weekly payments is an excellent way to manage your mortgage.
Why not make a bi-weekly payment instead of paying twice monthly or 24 times annually? So, why not automate the payment process so that your home can be paid off more quickly?
6. Round up your payments
Davis also suggests rounding up your monthly mortgage payment to the nearest hundred if you’re wondering how to pay off your house faster.
If that’s too much, pay a flat amount like $30 or $40 per month toward your mortgage. Over time, the additional payments will substantially accelerate your mortgage payoff. So, don’t just pay your minimum amount of monthly fees. Strive to pay even just a bit extra every month.
7. Use extra income to pay additional payments
Do you receive regular rebates or tax refunds? These are excellent to use toward your house loan. Rebate checks and bonuses seem to vanish rapidly, so you might as well put them to good use. These lump sums make a one-time payment to the principal for debt reduction.
If you can arrange it, pay an additional payment each quarter. That additional payment can help you pay down your home loan interest, saving you a considerable amount of money.
You can use a mortgage calculator to get an indication of how much interest you will spend over the life of your loan.
The additional mortgage payment calculator on the 4% loan interest loan page has various features for low interest rates.
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You won’t believe how much money you will save by paying an extra mortgage payment.
8. Refinance your home
Refinancing is one way to pay off a mortgage quickly. Refinancing is a process that can lead to a lower monthly mortgage payment and could potentially save you thousands. As an example, Sara of Gathering Dreams has refinanced three times in the last eight years.
She was able to realize success by upgrading her house. This permitted her to obtain a lower mortgage, and save almost $4,000 annually.
Here’s how refinancing your mortgage can help you save money and pay off your house faster:
You can refinance your 30-year mortgage into a 15-year loan. If you can afford the increased payments. Rather than financing a 30-year mortgage, you halved the repayment term. This is a smart way to refinance your house and reduce your payments.
A lower mortgage rate could save you thousands of dollars, and you could use the savings to shorten the term of your mortgage or pay it off sooner. For example, if you refinance to a less expensive rate, your payments will be less each month, but you can use the amount you’re saving on interest to pay extra on your principal.
Nonetheless, the financing costs have to exceed the amount you pay in refinancing charges. Some lenders may waive closing cost refinancing, so be sure to consider this option as well.
Some have the impression that if you are even only a 1% cut from your current score, it isn’t worth it. However, it depends on the factors involved, such as how long you intend to remain at your home, your current loan terms, and so on. You can use the mortgage refinance calculator to see if you will save any money.
Private mortgage insurance is typical with first-time buyer FHA loans. Many first-time buyers will obtain these loans because they do not need a 20% down payment. In fact, you can obtain a mortgage with only a 3.5% down payment.
However, these loans then require what is referred to as private mortgage insurance. This insurance is to protect the lender if you defaulted on the loan.
The cost PMI ranges from 0.58% to 1.86% of the original loan amount per year. This can get costly. PMI must be paid until you have paid your balance below the 80% loan-to-value ratio. The good news is that you can refinance into standard financing if your property value has increased and lower your PMI if it is a lower rate.
If you install, you can use your funds you were paying for PMI as extra payments to completely pay off your home sooner!
If you are considering refinancing into a shorter term, a lower rate, or to remove PMI, make sure you understand exactly what you should do, depending on whether you plan to refinance into a shorter term, a lower rate, or to remove PMI.
These key tips are how to pay a mortgage off fast!
Use these helpful tips to shave years off your mortgage and save thousands of dollars. Even paying just 1 percent more on your home loan every year can save you thousands in interest payments. Of course, you can arrive much faster by using these additional suggestions.
look for ways to cut costs and make more money, so you can buy your home for free and clear of debt sooner!