Personal Finance | Mortgage
Mortgage-Free Living: Top Strategies for Homeowners
Here are 5 tips to help you pay off your mortgage ahead of schedule.
If you’re a homeowner, paying off your mortgage is one of your biggest financial goals. Not only does it provide you with a sense of security, but it also saves you money because you avoid interest payments over the years.
Several ways can help you pay off your mortgage early, and we will discuss them today.
1. Refinance to a Shorter Term
While refinancing to a shorter term can save you a significant amount of money on interest payments over the life of the loan, it also means higher monthly payments.
For instance, suppose you have a 30-year mortgage for $200,000 at a 4% interest rate. In that case, you would pay $143,739 in interest over the life of the loan. However, if you refinance to a 15-year mortgage at a 3% interest rate, you would save over $98,000 in interest and only pay $45,446 in interest over the life of the loan.
Keep in mind that refinancing to a shorter term means higher monthly payments. So before deciding to refinance, you should consider its impact on your monthly budget. Make sure you can afford the higher payments without sacrificing other important expenses.
2. Make Biweekly Payments
A biweekly mortgage payment involves paying half of your mortgage payment every two weeks rather than once a month. Consequently, 26 half payments are made each year, which is equivalent to 13 full payments.
If you make an extra payment each year, you can pay off your mortgage faster and save money on interest. As an example, a 30-year mortgage for $200,000 with a 4% interest rate will result in an interest payment of $143,739 throughout the loan. You could save over $28,000 in interest if you switched to biweekly payments and pay your mortgage off five years earlier.
You should make sure that your lender applies the extra payments toward your principal balance rather than just advancing your due date. To avoid late fees or missing payments, you may also want to set up automatic payments.
3. Pay More Than the Minimum
Even a small increase in your monthly payment can make a big difference in the long run.
For the same example, If you have a 30-year mortgage for $200,000 at a 4% interest rate, your monthly payment would be $954.83. If you were to increase your monthly payment by just $50, to $1,004.83, you could pay off your mortgage five years and nine months early and save over $16,000 in interest payments.
If you’re able to increase your monthly payment even more, you can save even more money and pay off your mortgage even faster. Just be sure to check with your lender to ensure that there are no penalties for making extra payments or paying off your mortgage early.
4. Take Advantage of Windfall
The key is to resist the temptation to use the money for other expenses and instead put it directly toward your mortgage.
For example, if you receive a $5,000 bonus at work, you could apply the entire amount to your mortgage principal. Depending on the terms of your mortgage, this could result in significant savings on interest payments over the life of the loan.
5. Rent Out Part of Your Home
Renting out a spare room or your entire home can generate extra income that you can use to pay off your mortgage early.
To rent out a spare room, it’s crucial to find a trustworthy tenant who respects your space and pays rent on time. Establish clear boundaries and rules to ensure you and your tenant are on the same page.
If you’re considering renting out your entire home through Airbnb or another short-term rental service, research local regulations and taxes to ensure you’re operating legally and in compliance with all rules and regulations. You’ll also need to manage your bookings and guest interactions carefully to provide a positive experience for you and your guests.
Final Thought
Paying off your mortgage early can provide financial security and save you money in the long run. By implementing one or more of these strategies, you can pay off your mortgage early & achieve financial freedom.
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