December 26, 2023 at 5:17 pm #28847December 26, 2023 at 8:36 pm #28885
It is always a good idea to pay off any debt — including a mortgage — as early as you can. However, it requires a well-thought-out strategy and reading the terms of your mortgage carefully as some lenders charge a fee in case the mortgage is paid off early. Some ways you can pay off your mortgage early are:
- Making extra payments each quarter: Your initial monthly mortgage payments largely go towards interest payments and then more towards paying off your principal. According to experts, making one extra payment a quarter could help you save nearly $65,000 on a $220,000 mortgage at a 4% interest rate, while knocking off close to 11 years of mortgage payments.
- Eat home-made lunches:: While this may not seem like the topmost financial advice, avoiding eating out, bringing lunch from home can save you $1,200 a year! putting this amount toward your mortgage payments can knock off as many as three years in mortgage payments. Skipping the daily coffee shop coffee may also help a little with this.
- Refinance: Converting your 30-year mortgage to a 15-year mortgage would automatically save you half the time and lower the interest rates as well. You could try using the extra quarterly payments strategy with this again to help pay off the mortgage in 10 years.
- Downsize: You could consider selling your home once you have enough equity and buying a cheaper, smaller property instead. You could use the proceeds from the sale to pay for your new home in cash. This way, you won’t incur extra loans.
- Contribute more towards a down payment: Ideally, putting 20% of the home value down is recommended by experts. This saves the amount you would otherwise have to pay for private mortgage insurance as well. It also reduces your interest rates and principal, and hence monthly payments. So, it is a good idea to first think about the cost of the property you want to own, begin saving for a sizable down payment, improve your credit score, and pay off any other smaller debts you already have before you decide to buy the home.
- Consult a professional: Consult mortgage lenders and real estate professionals to understand the options you have for your budget and if you can find something less expensive. Deciding to buy a home is a long-term commitment.
You need to commit not just after buying a home, but in fact, several years before because you need to save up as much as you can for a down payment while making sure you have enough to cover your regular monthly expenses and debts.
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