If you are someone who has recently purchased a home or has credit card loans to pay, then this one is for you, even if you are a freelancer.
Purchasing a house is a fantasy and now that you have one, you must aim at paying mortgage faster. Mortgages are payable in installments over a 30-year period. This, not the only option available. People often panic looking at the number of installments they must pay. The loan is payable before that and does not lock you down for 30 years. Prepayment charges may apply.
Many people wish to pay the mortgage off as early as possible, as it makes sense. Paying it off builds up equity and enables another investment. Follow the tips mentioned here, and you will be able to cut down the 30-year term by at least half. The tips may sound difficult to follow, but you can pay the mortgage off faster by using them.
Here are 6 tips to pay off the mortgage at a faster rate:
1. Budget & Save
It is best to start now, by keeping track of spending; record all expenses. Make a budget and ration every dollar of earnings to specific categories. Divide the money towards savings and expenses. Write a budget plan down and create a cash envelope system to control expenditure.
Cut down all small expenses like coffee and hunt for bargains. Take advantage of thrift shops, coupons, and clothing sale.
Once you have cut down on expenses and begun saving money, stash away cash as an emergency fund. Build up at least $1000 to fall back on, which may take 6 months. Leave it unless there is a major financial crisis. Sell your car, if you do not need one, or drive less, walk more or take public transport. Try to cook at home rather than eat out.
2. Downsize or Monetize
Make big cuts in the budget like on housing, transportation, and food. These will make a big impact on the net earnings and eventually the ‘bottom-line’. Downsize to a less expensive, smaller home, if possible. You may choose to monetize it by getting a roommate and use the rental income to pay off the mortgage.
3. Make More Payments
Monetize on skills or talents and increase your monthly income. Many people choose to freelance or moonlight. If you get a bonus, refund, or raise, use that extra cash or income to pay towards the mortgage installments. Pay the monthly installments by going beyond the minimum payment amount each month. You can do this in three ways:
a. Make one extra payment once a year. This will shorten the mortgage by a few years. Divide the amount and pay it in 12 installments or in 24 installments by paying twice a month.
b. If the extra payment sounds big, then round up the payments to pay a few extra dollars.
c. Increase the amount every month, or after every six months and maintain it. You can choose to increment by an ’x’ amount, which could be $5, $20, $50, $100 or whatever is possible. This will save you from paying more interest.
4. Get Inexpensive Homeowner’s Insurance
Shop around for the best and the lowest homeowner’s insurance premium rates. Bundle up auto- and home insurance to your advantage at a lower rate or a higher deductible. Low insurance premiums reduce the mortgage payments. However, if you continue paying the amount as before, then you will be able to pay off the mortgage at a faster rate.
5. Refinance Your Mortgage
Shop around to refinance and convert the 30-year mortgage to a 15-year-loan at a fixed rate. This will pay off the mortgage in half the time. Moreover, you will pay less interest in the 15 years as compared to 30 years. If it is possible to increase the installment amount, refinance and pay off the mortgage in 10 years.
Do not choose an adjustable rate mortgage (ARM) as the interest rate will keep changing, in favor of the bank. There will be extra transaction and closing costs when you refinance.
Moreover, if it sounds risky, then pay the amount as if you have refinanced. This will give you flexibility, in the case of an emergency or financial crisis. You must not fall back on the older payment amount if you want to clear off the mortgage amount faster. This will need discipline.
6. Merge All Debts and Use Equity
Protect yourself from the increasing interest rates by consolidating several unsecured debts. Consolidate credit cards, medical bills, personal loans, payday loans can into one bill. When the home loan interest rate rises, it affects the interest rate of all. Moreover, the interest rate on credit cards and personal loans are higher than on home loans.
If you have already paid off some amount of debt, then you would have accumulated some equity. It is the difference between the current property value and the amount you owe. Use this equity to re-borrow and pay towards the mortgage.
There may be other options or deals available. Keep an eye open for such deals and take advantage of them. You will be able to pay off your mortgage at a faster rate.
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