How To Pay Off Your Mortgage Faster
A mortgage loan is in most cases 30 years in length and they are designed to make owning a home affordable for all people. The length of the loan can reduce payment amounts but also increase the interest paid. The ability to pay the mortgage off early will save thousands in interest and allow people the freedom of true home ownership much sooner than they anticipated.
If the loan was obtained at a high interest rate due to a low credit score and you have since increased your score you might consider refinancing. Anytime the loan can be refinanced with a smaller interest rate it should be done, this saves thousands of dollars in interest but will also reduce your monthly payment. A reduced monthly payment will assist you in being able to afford an early pay off method.
The easiest way to pay the mortgage off faster is to split the payments. Instead of making a monthly payment of $1000 you should make bi-weekly payments of $500 each. This method allows you to make 2 extra mortgage payments each year without ever noticing it in your budget. The two extra payments that are made are going directly to the principle of your loan and will reduce your loan life.
You can choose to pay a large lump sum annually. The large amount of money goes directly to the principle and can dramatically reduce your loan. Most lenders will have limits of the amount of over payment you can pay without penalty so speak to them and find out what limits you are restricted to if any. You might be able to shave off 5 or ten years using this method. It can be hard to come up with so much money at once for many people.
If you do not have the ability to come up with a large amount of money each year for a one time large overpayment you can pay over each month. You will still need to find out if you will be given any penalties from your lender before deciding the amount. You pay an over-age amount each month with your payment and it will work the same way as the large onetime payment. Your loan will be greatly reduced and it will be much easier to come up with the extra money each month than the one time large sum.
If you are looking for a way to truly reduce the size of the loan and want to see more results than just a mere five years drop off you can combine methods. If you choose the bi-weekly payments then include an additional payment with each. A small amount will show you results so you do not have to go overboard here. The larger the amount the sooner the payoff obviously but even with a modest amount you will see a ten year difference in the lifetime of the loan. If you are lucky enough to have a lender who does not penalize for over payment then you can easily reduce your loan by 15 years or more with over payments. The weeks you have more you can send more and when you don?t have much just send a few dollars over.
Graham McKenzie is the content coordinator for a leading South African leading Home loans and Bond Origination portal which provides access to ABSA Home loans.
categories: Homeloans,Bonds,Mortgages,Loans,Property,Finance,Personal Finance,Money,Banking
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