6 Tips to help you pay off your mortgage sooner!
Welcome back!
The birds are singing, the deer and the antelope playing, the llamas frolicking, and you’re mortgage free! Sounds good, doesn’t it? Here’s how to get there — fast:
- Make an annual lump sum payment: Inheritance? Birthday boon? Work bonus? Tax refund? I’ve got an idea - put it towards your mortgage! I don’t know of any better gift than living mortgage free.
- If at all possible, take a short term: I can’t stress this enough - Choose the shortest mortgage term you can comfortably afford. 40 year mortgages are astoundingly popular, and will leave you making payments well into your golden years, not to mention paying a fortune in interest over the life-span of your loan. Long mortgage terms should only be used as a last resort, with the intention of speeding up the payment process somewhere down the line.
- Go bi-weekly: Shave time and interest off your mortgage by opting for bi-weekly payments over a traditional monthly payment. You can sync these with your paycheques, and because you’ll be paying bi-weekly, you’ll painlessly end up making what equates to one extra traditional monthly payment a year.
- Use the round-up technique - If your payment is $773? Pay $800. Why is this an excellent idea? The small extra payments this equates to really add up, and cuts down on the amount of interest you’ll pay over the lifespan of your loan. So For the price of a large pizza a month, you’ll save a ton on your mortgage.
- Continually reevaluate - Don’t let the bank be in the driver’s seat of your financial situation. Stay on top of the market’s fluctuation in interest rates, and refinance when appropriate.
- Don’t buy until you’re ready - Be strong and don’t rush out to buy a house, just to buy a house. Save up a significant down payment, so that you can avoid throwing your money away on Private Mortgage Insurance, because if you put down less than 20%, you’ll probably end up paying this.
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Thanks Ferg. Great tips, I want to be mortgage free too!
I am using the round-up technique. In fact, I purposely get a package that allows me to do so. I did a spreadsheet to simulate the different between paying exact and paying a little extra. The interest we could save by doing so keeps me motivated to do it consistently. My monthly installment is 803 and I make an effort to pay 900, 1000 or more monthly.
A friend of mine took on the bi-weekly route. This approach is tough and requires extreme discipline. Why I say so? His mortgage adds up to 3000 per month. It is not something I can afford at the moment. Anyway, the guy is 10 years my senior.
@Billy - You’re welcome.
@ax associate - Good for you on paying extra. The benefits are definitely worth it. I agree, I couldn’t handle a 3000 payment either. I have done bi-weekly, but it was with a smaller mortgage so the payments were not too bad.
Considering most people use Microsoft Excel, there is a great template that is available from Microsoft called the Loan Amortization Schedule. This will allow you to see a breakdown of your loan and determine how important the additional paid in capital really saves you.
Here is the link to the templalte: http://office.microsoft.com/en-us/templates/TC010197771033.aspx
@Beau71 - Thanks. Excel has never been much of a friend of mine, but I’m going to check that out.