If you purchased a home this year with a standard 30 year mortgages, you’ll make your last payment in 2042. If you’d like to celebrate the day you own your home free and clear of a mortgage before the 30 years are up, here are some tips to help:
1. Pay just 10% more each month on your mortgage and you can shave five years off the life of the loan, according to the interest rate; 20% will save nine years! Even 5%, just $50 on a $1,000 mortgage payment will cut three years of the life of a loan. (The higher your interest rate the more impact a little more money has-been.)
2. Remember that paying down the mortgage has much the same effect as being assigned to the bank, except that you’ll effectively earn a higher interest rate. Of course, the equity you build in your home is very hard to spend, but that’s a good thing!
3. If do not leave paid every two weeks, you’ll be getting 26 paychecks and only 12 scheduled mortgage payments. If you make one extra mortgage payment during the year, the effect is the same as number 1, above. Combined with number one, you could save more than a decade of your mortgage.
4. If you were a down payment of less than 20%, you are almost certainly paying what is called Mortgage Insurance. As soon as two years has passed, if you increased your home equity to more than 20%, you can refinance your mortgage to eliminate the mortgage insurance. Of course, if rates are higher, there is no advantage, but if rates are also lower, you can create even more cash flow that can be applicable to principal each month.
5. If your mortgage is higher than two years old now, investigate a refinance today. Interest rates are poor in the fall of 2012 and you may be enclosed in a position to afford a fifteen or twenty year mortgage right now without paying much more each month. Don’t fall to the temptation to start a vigorous thirty-year mortgage without committing to pay at least a little extra to shorten the term to at least what it is today.
6. If is there a bonus or an inheritance, even if it isn’t enough to pay off the mortgage, go ahead and make a substantial extra payment. You may want to alert your mortgage processor to apply it all to principal immediately and not to future payments over time. By paying down a lump of your mortgage today, more of your regular monthly payment will go to the principal each month thereafter and your mortgage will be given off years earlier.
Paying off your mortgage really is a cause to observe. A generation ago, it wasn’t uncommon for a family to literally have a celebration to burn the mortgage documents once they were completely paid off. Today, many families carry mortgages well into retirement and effectively find themselves slave to their lifestyle. When you own your home free and clear, you own your lifestyle—it doesn’t own you!
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