Owning a home is a quintessential part of the American Dream. There’s nothing like being able to live on a piece of land and call it your own. But for most people, the process of home ownership is one that extends across many decades – even a lifetime.
A large portion of “homeowners” never fully pay off a mortgage – meaning they don’t actually own their homes. And if they do pay off the mortgage, it takes at least 30 years. But just because you have a 30-year fixed-rate mortgage, doesn’t mean you have to wait that long to own your house free and clear.
6 Tips for Quickly Paying Down Your Mortgage
Do you know the true cost of buying a house? It’s way more than you think.
Let’s say, for example, that you’re buying a $250,000 house using a 30-year fixed-rate mortgage at 4.5 percent. You put 20 percent down, meaning you take out a loan of $200,000. Do you know what the loan will actually cost you by the time you repay it in three decades? A whopping $364,813.
The sooner you’re able to pay off your mortgage, the faster you’re able to get out of debt, and the more money you’re able to save in interest. (If you want to play around with your own numbers, Bankrate has a nice little calculator to help you see how much you can save.)
After running some calculations and seeing how much money can be saved, you’re probably feeling a little excited. But how can you actually pay down your mortgage faster? Well, let’s take a look:
1. Only Buy What You Can Afford
The first piece of advice is to only buy what you can afford. When you pay more for a house than you can afford, you get yourself in trouble. Not only does this increase the chances of foreclosure, but it also constricts your budget and makes it nearly impossible to pay off the loan early.
Don’t let the bank tell you how much you can afford. While you may get approved for a $300,000 loan, this doesn’t mean you have to spend that much. Why not purchase something for $225,000 and pay off the house like it’s a $300,000 loan? You’ll pay it off much quicker and can then choose to upgrade if you feel like it.
2. Consider Refinancing
If you already own a house and are looking for ways to speed up the loan repayment process, it may be in your best interest to refinance. For example, moving from a 30-year to 15-year mortgage will lower your interest rate and speed up the principle payments. However, this only works in certain situations. Since interest rates are currently on the rise, it’s likely that your rate is already lower than today’s rates. You can do a little research and find out.
3. Come Up With a Plan
Once you feel like you have the right mortgage for your situation, it’s time to set a goal and come up with a game plan that moves you from Point A to Point B.
Maybe you want to pay off your mortgage five years earlier than scheduled. Or, maybe you’re really aggressive and want to have it paid off in five years, before the kids go to college. Every situation is different, but you need a goal. Once you have a goal in place, you can create a plan for reaching that goal.
Strategic budgeting and fiscal discipline are the keys to paying off your mortgage earlier. Spend some time looking at your budget – or creating a budget if you don’t already have one – and identify areas where you can cut back. By eliminating non-critical expenses, such as cable or fast food, you might be able to reallocate a few hundred dollars per month towards the mortgage.
4. Increase Your Income
Cutting back on personal expenses and adding that money to your premium payment each month is a big step in the right direction. But if you really want to get serious about paying off your mortgage early, look into increasing your income.
There are lots of unique ways to make money on the side these days. Whether it’s driving for Uber, delivering pizzas, or doing freelance work over the internet, there’s no reason you can’t make an extra $200 to $300 per month. That might not seem like a lot, but over the course of, say, 7 years, it could equal more than $25,000 in extra payments.
5. Try These Accelerated Techniques
Maybe you don’t have a lot of room in your budget and are already working as many hours as you can. While you may not be able to slash 10 or 15 years off your mortgage, you can still speed things up a little bit. Two popular techniques include switching to bimonthly payments and/or rounding your mortgage payment up to the nearest $100 dollars.
6. Put “Found” Toward the Mortgage
A few dollars each month will make a difference over many years, but you also need to put big chunks of money towards your mortgage if you want to get ahead. The best way to do this is by putting all of your “found” money towards repaying your home loan.
Found money includes work bonuses, tax returns, inheritance money, or even the money you win from your office’s March Madness pool. Again, this money adds up over time.
Contact Green Residential Today
Buying a home is a very intimate process that involves a number of financial, emotional, and practical factors. Whether you’re purchasing your first home, or you’re looking to sell your existing home and upgrade or downsize to something that more adequately reflects your present situation, let Green Residential walk you through the process.
With decades of experience in the Houston real estate market, we understand exactly what buyers and sellers want and help our clients navigate real estate transactions with minimal stress and maximum peace of mind. For additional information, please contact us today!