Tips for Clearing Your Mortgage in Ten Years or Less
Do you dream of owning your own home? Of course, you do. Everyone does. To many, owning a home is an indicator of success. Approximately 26.9 million Americans own their own homes, according to Urban Institute, either through cash or mortgages.
However, achieving this dream can be quite a hassle. It’s not just the house that’s on your mind—the children’s education and retirement, among others, compete for the same attention and funds.
Just like any other debt, paying off your mortgage as early as possible is the best move. In this article, you’ll get tips on how to clear your mortgage in less than ten years.
Tip #1: Buy an Affordable Home
This is the first step to paying down your mortgage early. Before taking out a mortgage, do your research about the kind of home you can afford. Do this by going through your total income per month. Next, determine whether, after all expenses, you can pay monthly installments on the kind of home you want.
Experts recommend that house payments be no more than 25% of the monthly income. When visiting a bank, the financial expert will try and fit the loan in your budget by spreading it over a long time. Just like with a car loan, take a look at the final number and ask yourself whether it’s affordable.
Tip #2: Go for Biweekly Payments
There are 26 biweekly periods per year. Making biweekly payments means splitting your monthly payments in two and making payments every two weeks. This results in 13 full payments every year. As you can see, there’s an extra month in the payments, thus shortening your mortgage repayment period.
This type of payment is best suited for borrowers who are able to make more in payments than is required. In addition, since the payments are time-based, it instills discipline in the borrower. This type of payment can wipe off at least 8 years from a 30-year mortgage depending on the interest rates offered.
Tip #3: Shift to Frugal Living
Frugality works magic in terms of savings. One of the ways to implement frugal living is by living within a budget. With it, you can identify what you need vs. What you want. In addition, you can go ahead and develop alternatives to achieve the same result.
For example, instead of buying vegetables, you can plant them in your backyard if you have one. This will save you money you’d have otherwise used to purchase them every week and for gas to buy them. You might also be able to walk or cycle to work and carry a packed lunch.
Tip #4: Pay Off any Debt
The rule of debt repayment states that you first need to get rid of the most expensive debts you have. By doing this, the interest rate will not be as costly, thereby saving a lot of cash. It also gives you room to organize yourself to pay off the debts much faster.
According to nation21loans.com, The most expensive debts include credit cards with high interests and loans. Pay these before putting away money for mortgage repayment.
Tip #5: Clear the Principal Amount First
In the first couple of years of the mortgage, it may seem like you’re paying off the interest while the principal amount remains more or less stagnant. You are right! The reason for this is the compound interest that makes it quite hard for you to clear the principal amount.
The best way to reduce this principle is to try and pay off as much as you can. How do you do this?
After making your monthly repayments, throw extra cash you make into the mortgage repayment. This type of payment slashes away some of the principal amounts. In the long run, you’ll pay interest on a smaller amount.
Tip #6: Tax Refund
Making extra payments towards mortgage repayment will cut down on the repayment period. However, many people don’t know how to go about this. One way you can go about it is by using your tax refunds to make a lump sum payment.
If you receive a tax refund for, as an example, $3,600, that translates to payments of $300 per month. In total, you’ll have made a year’s worth of payments and reduced your principal dramatically.
Tip #7: Utilize your Home’s Equity
Equity here is defined as the difference between what you owe the lender and the property’s current value. Here’s a practical example.
If your property is worth $600,000 and you owe the lender $200,000, the difference, $400,000, is the equity. If you can borrow this amount to help you clear the mortgage at a lower interest rate, you can pay off the mortgage earlier. You would then have a smaller debt to repay. -
Tip #8: Seek for Professional Help
Buying an affordable home requires a lot of research and sometimes some professional help. This help can come in the form of real estate agents and financial experts. The former can help you get through the buying process which will save you money and time.
What’s more, you can get exclusive information on various homes, thus giving you an edge. When it comes to financial experts, you get valuable advice on whether you can afford a certain home or not. Besides that, they can help you create a budget to help you remain focused on the goal while cutting down on unnecessary expenses.
Apart from these tips, there’s still more you can do to clear your mortgage, like renting out free space in your house or refinancing. All in all, the bottom line in all the tips is to remain disciplined.
You have to restrict yourself and avoid unnecessary spending in order to put away as much money as you can into paying off your mortgage.
These are just some of the ways you can save in order to pay off your mortgage early.