3 Ways To Pay Off Your Mortgage Faster
This Blog On 3 Ways To Pay Off Your Mortgage Faster Was Written By Gustan Cho NMLS 873293
Once you decided to be a homeowner, you will be excited with the idea of the many benefits in being a homeowner, however, when home buyers realize that most home buyers need a 30 year fixed rate mortgage, they panic and often wonder whether or not they can ever pay off their mortgage in their lifetime. Many of our viewers at Gustan Cho Associates Mortgage & Real Estate Information Resource Center often contact me and ask if there are any viable alternative in paying off a home loan sooner without draining their savings account and/or drastically affecting their monthly budget. The most common 3 ways to pay off your mortgage faster is making extra monthly monthly mortgage payments, make one extra payment every year, and paying your monthly mortgage payments every two weeks instead once a month. Paying extra every month on your scheduled monthly mortgage payments is often a great idea. By making extra monthly mortgage payments to your lender can often save tens of thousands of mortgage interest charges as well as reduce the amount of years of your amortized monthly mortgage payments which means a reduction of your overall interest expense. Every new homeowner should contact their mortgage lender and see if they offer an accelerated monthly payment program where the mortgage lender servicing agency can sign the homeowner up where they can do the analysis where how much you can save money.
The 1st Of 3 Ways To Pay Off Your Mortgage Faster
You do not need to have a large chunk of cash to pay off your mortgage faster and have your home loan paid off sooner than the loan due date. If you can pay a little more every month than the minimum due, the additional money you pay on top of your minimum principle and interest due will go towards your principal mortgage loan balance. The principle mortgage loan balance is the actual amount you owe on your mortgage loan. Every month when you pay your mortgage payment, there are two components. Your principal payment plus your interest payment on your home loan. When you first get your mortgage loan and start making your monthly payments, most of the mortgage payment will go towards paying the interest and only a small fraction of your payment will apply towards the principle of you loan balance. By paying the extra monthly payment every month, the overage payment goes towards paying down your principle loan balance. That extra little principle payment will make a big difference in the upcoming years ahead and if you are consistent with making the extra monthly payment, it could mean many years of reducing the term of your mortgage.
Making One Extra Mortgage Payment Every Year
The 2nd of 3 Ways To Pay Off Your Mortgage Faster is by making one extra mortgage payment every year. By making one extra mortgage payment every year, you can shave off years off to pay off your mortgage loan. Homeowners who get annual bonuses every year or get their tax refunds can use part of those funds to pay one extra mortgage payment every year and will be eventually rewarded in having their mortgage paid off much earlier than anticipated.
Paying Your Mortgage Payment Every Two Weeks Versus Once A Month
Not all mortgage lenders will permit borrowers to change their monthly payment schedule to bi-weekly payments without any costs or fees and some will not accept a partial mortgage payment and will sweep the partial payment into an escrow account and once the completed amount is in the escrow account, they will then sweep it towards paying the mortgage payment. If that is the case, you can just make a savings plan yourself where you can transfer half of your mortgage payment into a savings account from your checking account and at the end of the month make your monthly mortgage payment. If you do this every two weeks, you will have a total of 26 mortgage payments which translates into 13 monthly mortgage payments which is 13 monthly payments in one year versus 12 monthly mortgage payments. This system allows you to make one extra mortgage payment every month. If you follow this payment plan religiously, you will be rewarded by paying off your mortgage loan years ahead of schedule.
Savings By Paying Extra Every Month
You can save thousands of dollars in mortgage interest expense by making one additional monthly mortgage payment each year. For example, for a homeowner with a $200,000 loan balance with a 5.0% 30 year fixed rate mortgage loan, the amount of interest expense this borrower will pay over the course of the 30 year term of the home loan is $186,512. However, if this same homeowner were to make one extra mortgage payment every year, the borrower will have paid off the loan in 26 years versus 30 years and the total interest expense this homeowner would have paid over the course of this loan term would have been $153,813 versus $186,512. This translates a savings of $32,699.
A home is a person’s single largest investment in their life. Paying a mortgage loan early offers a sense of financial security and great accomplishment. That little extra monthly payment may not seem like it will help, but at the end of the day, it makes a huge difference.