Introduction
The owning of a house is one of the largest financial achievements that an individual can achieve, but for most home-owners, the journey towards owning a home starts with a mortgage.
Although a mortgage payment could be spread over 20-30 years, paying off your mortgage early can have huge benefits in savings. You become able to save more resources for other investment in retirement, travel, or long-term investments.
Also, prepaying your mortgage will reduce the total amount of interest paid over the life of the loan, and you build up your wealth faster.
This article will give you the whole procedure to guide you on how you can be able to pay off your mortgage early in a way that works for you.
From knowing your mortgage terms to refinancing, extra payments-these will save you time and money and put you mortgage-free quicker.
Understand Your Mortgage Terms
A. Reading the Details of Your Mortgage Agreement
As a prelude to discussing the methods for early repayment, consider reading through the provisions of your mortgage agreement.
This will take time and patience but learn the contents of your mortgage agreement.
Pay attention to such details as: the interest rate you pay, your payments schedule, the prepayment penalties, and your amortization period.
These will help you determine which method works best in your case but avoiding any fees that may be secretly included in the first loan agreement.
B. Estimate Possible Savings through Early Payment amount
Once you know your mortgage, use online mortgage calculators to determine how much you could save by making extra payments.
Even tiny changes in your payment schedule-the extra amount paid with each monthly payment or outright making lump sum payments in sums-will add up to lower interest paid and fewer years of paying off your mortgage.
Select the Right Type of Mortgage payments
A. Fixed vs. Variable Rate Mortgages
Choosing a mortgage product right for long-term saving has always been key; fixed-rate mortgages are very stable since the rate applied is not to be changed during the entire period of loan, but possibly comes higher at first.
Variable-rate mortgages, on the other hand, start with lower rates, but the rate varies over time and might bring lower or higher payments.
By understanding this difference between mortgage lenders, you select a mortgage company that will align with your financial situation and good repayment goals.
B. Looking for a Solution Tailored to Shelto’s Mortgage Agents
Shelto’s Mortgage Agents can guide you to make an appropriate decision between a fixed and a variable type of mortgage by considering your objectives, risk comfort level, and general market conditions.
With professional advice, you can pick the right kind of a mortgage lender with respect to your your loan early payoff plan.
Bi-weekly Amortization period
A. Switching from Monthly to Bi-weekly Payment
An easy one is simply to increase the frequency of payments in order to retire your mortgage faster.
For instance, from monthly to bi-weekly payments effectively makes an extra payment equivalent to one month per year.
Although this does not, at first blush, appear like a lot, it sure shortens your monthly mortgage payment.
B. Potential Savings Example
For example, assume that you have a $300,000 mortgage that has a 30-year term and 4% interest.
Replacing your regular monthly payments with the biweekly payments once-weekly payments can save thousands of dollars in interest and payoff the loan several years prior.
Pay Lump Sum Prepayments
A. Use Windfalls to Pay Off Principal
If you inherit a check, or get a tax refund, bonus, or even a gift, you might decide to use it all at once to prepay part of your mortgage.
The type of prepayment reduces your loan balance outstanding and, therefore also the total interest you will pay over the long term.
B. Lienholder’s Rights And Prepayment Privileges of the Debtor
Most mortgages contain prepayment privileges-you can pay an extra portion of your principal each year with no penalty.
Learn about the terms of your mortgage and take full advantage of these privileges.
You may not be permitted to be charge prepayment penalties for much more than your regular monthly amount, but the impact of those additional payments still can be huge.
Pay More Than Your Scheduled Amount
A. Why You Want to Increase Your Payments Gradually
The other good strategy is to increase your periodic payments. A small, insignificant increase in your monthly payment can have a drastic impact on the total interest paid and the length of time it takes to pay off your mortgage.
For example, if you can increase the funds applied to your monthly mortgage payments by even $50 to $100 a month, you could cut years off the term of your mortgage.
B. Sample Calculation of Savings Over Time
Consider the following example: You have a $250,000 mortgage at a 4% interest rate over 30 years.
You increase your monthly payments by $100, which saves you years off your loan term and tens of thousands in interest over the life of the mortgage.
Refinance to a Shorter Term
A. The Case for Refinancing to a Shorter Term
Refinance into a shorter term mortgage-a 15-year mortgage rather than a 30-year mortgage-will save thousands of dollars in total interest over the life of your mortgage.
Your payments will be higher, but you’ll pay, debt free, off that loan much faster and save tremendous sums in interest.
B. Savings By Shortening The Term
In this example, you refinance a $300,000 mortgage from a 30-year term at 4% to a 15-year term at 3%.
You would pay a monthly premium and one extra mortgage payment each, but you save almost $100,000 in interest payment and the pay-off period of the mortgage would be half the time.
Investment in a Rental Property
A. Invest All Rental Income Into Paying the Mortgage
If you’re looking for a little more aggressive method, then renting out a property is the way to go. The rental can be used for paying back your mortgage.
Although it’s riskier and more complicated, it might be a good method of accelerating a mortgage payoff if you’re comfortable running a rental property.
B. Leveraging Real Estate Investments
Before you begin to invest in real estate, consult with financial planners or consultants at Shelto’s to find out if you can afford your long-term financial goals appropriately.
There is proper preparation and research that needs to be done to succeed with using rental income to pay off your mortgage.
Avoid Lifestyle Inflation
A. Make the Current Lifestyle Important
When you get a raise, you immediately inflate your lifestyle by buying a new car, dining out more often, or taking a lot of expensive vacations.
Guess what? This extra cash is called lifestyle inflation, and this is what will prevent you from paying off your mortgage in the shortest period of time. Use that extra money for mortgage payments instead.
B. Applying Increased Income to Mortgage Payments
You stay in the same lifestyle and pay extra using excess money; this will be very instrumental in saving time taken to repay a mortgage, and at the same time, you will save money on interest charges.
Interest Rate Watch
A. Refinancing based on Significant Decline in Interest Rates
With shifting mortgage interest rate and rates over time, big declines in rates can offer the most interest savings in the form of the lower rate, thereby representing a good moment to refinance and save even more and more money with lower monthly payments and less interest payments.
B. Refinancing Savings Review
Use a mortgage calculator to determine how much you can save before even refinancing. Ensure the effort also takes in the refinance cost.
Check to see whether the costs balance out with savings. Once the math is on your side, refinancing can be used to force the pay down of the mortgage even further.
Keep Informed and Periodically Review Strategy
A. Importance of Ongoing Review and Adaptation
Paying your mortgage early requires discipline and periodical review of your strategy. Life circumstances and markets change, so it is very important to regularly assess progress and adapt if necessary.
B. Consulting Shelto’s Experts for Personal Advice
With such professionals at Shelto, you can be better placed to have your progress reviewed and advised on the possible changes that need to be done. You are, therefore, better placed to pay the mortgage ahead or off the mortgage early.
Conclusion
Actually, paying off your mortgage before time is not a dream but a reality if done with the right strategies.
There are several ways by which one can pay off the time and interest put on their home loan: increasing the frequency of paying, one can make lump sum payments, or even refinance by lifestyle inflation.
All these can help get you mortgage-free sooner and to enjoy the financial freedom.
Shelto believes in helping his clients to end their mortgage, and with individualized consultation and solutions geared for speedy payoff, you will quickly find that he can really assist you in securing your financial future.
You’ll benefit from the real pleasures of ownership.