The possibility of paying off your mortgage before the 25, 30 or 35 year amortization period is something most only dream of. However, there are ways that you can pay down your mortgage much more quickly while avoiding fees, penalties and other general obstacles. Even better – you don’t have to become a mortgage expert to take advantage of the possibilities; all you have to do is follow a few simple tips and do some planning in advance and it becomes simple. To help you become aware of your options, Loanbox has compiled a few of the easy and effective options to help you pay down your mortgage more quickly that you ever dreamed possible.
Round Your Payments Up To The Nearest $50
Rounding your mortgage payment up to the nearest $50 (for example, from $755 to $800) will help you whittle away at the principal without feeling like you are making a huge financial sacrifice. This way, you can put a few hundred extra dollars down on the principal of your mortgage every year. It is essential to let your lender know that the extra money is to be applied to the principal. Doing this early in your loan will be particularly beneficial due to the interest heavy payments in the first five to seven years of a mortgage.
Put A Lump Sum Down On Your Mortgage Once A Year
From time to time, you may have the good fortune of unexpectedly coming onto some extra money; perhaps you got a bonus at work, a financial contribution from a family member or a hefty tax return. Before you plan to jet off to Mexico for a week, consider how that money can be put to use in reducing your mortgage. By putting that money down on your principal, you can shave many months or even years off your repayment term. As with any alteration to your payment schedule, make sure you check with your lender about how many times a year you can make a lump sum payment on your mortgage, as there are typically terms surrounding this. If your lender permits it, you should definitely make it a yearly goal- it will pay off big time long term.
Make Extra Payments Early In Your Mortgage Term
Because most mortgages are “front loaded”, that is, interest heavy up front, making payments early in your amortization period will mitigate some of that cost. this is especially true if you did not have a large down-payment in the first place because the first few years are spent paying down the interest on your home loan rather than the principal. By paying early on, you can speed up the amount of time it takes before your payments start to affect your principal. This means that you will start building equity sooner; paying on the principal is essentially putting money in your own pocket.
Be Specific About Where Your Extra Payments Should Be Applied
If you decide to make extra payments, make sure you speak with your contact at your lending institution to explain exactly where you would like your extra payments to be applied. This is important because lenders may not understand what the money is intended for if you do not alert them that you wish to make extra payments. Specify that the money you are depositing is an extra payment to be applied to the principal. Do not just assume that your lender will automatically know that you intend to make an extra payment, this can lead to confusion on both sides, making a relatively simple process more complicated that it needs to be.
Stay On Top Of Interest Trends
Many people sign their mortgage papers and then figure it’s out of their hands- all that’s left to do is make the payments as outlined for the rest of the amortization period. However, you can reap many financial benefits if you make the decision to be an informed homeowner. That means staying on top of interest rate trends, new mortgage options and banking products; that way, you will be able to spot opportunities to reduce your debt load without having to wait until you renegotiate the terms of your mortgage, potentially saving you thousands of dollars.
Increase Your Payment Frequency
By increasing your payment frequency from monthly to say bi-weekly, semi-monthly or even weekly, you can save a ton of interest over the life of your mortgage. Most interest is compounded on a semi-annual basis for most fixed mortgages today, therefore, if you increase your payment frequency to weekly for example, you would be paying down the mortgage each week and therefore there would be less interest to compound.
Choose The Accelerated Payment Option When Possible
Most mortgage lenders today also offer “Accelerated” Payment options on their mortgages. This option only applies to Bi-Weekly and Weekly mortgage payment options. The Accelerated Payment option allows you to increase the weekly or bi-weekly payment and the increased amount will be directly allocated towards the principal portion of the mortgage with each payment.
Following one or more of these simple steps is an excellent start to paying down your mortgage more quickly. The first step in the right direction is finding an Accredited Mortgage Professional who will help you sort through all of your options in order to find the right mortgage for you. Contact Us to discuss your options today.
