The Federal Housing Administration (FHA) loan is often referred to as a first-time homebuyers' loan,…
Tips to Pay Down Your Mortgage Faster
When it comes to making wise investment choices for the future, many people understand and appreciate the value of home ownership. After all, you’re forced to make regular contributions to that future nest egg in terms of making the monthly mortgage payment. Every month, without fail, you write that check or authorize that bank withdrawal and bring yourself a little bit closer to that glorious day when the mortgage company no longer owns your soul.
It’s a relatively successful life plan. It’s just that the typical mortgage can drag on for up to 30 years. That’s a huge chunk of your successful adult working years. Everyone would like to change that dynamic to work more in their favor and, with a little planning, you actually can do that. Consider some of the ways you can reduce that mortgage more quickly.
- Start planning for your payoff date before you ever contact a real estate agent to set foot in a single house for sale by saving money for a significant down payment. A strong down payment will reap many rewards in the long run. If you put down at least20 percent when you close on the house, you can avoid paying private mortgage insurance, an insurance policy that protects the lender against you defaulting on your mortgage loan before you finish paying for the house. This is a huge savings which can put more money in your pocket, either for putting extra money against your mortgage payment or for decorating your new house to make it feel like home. Also, the more you put down initially, the lower your monthly mortgage payment will be.
- Don’t bite off more than you can chew when it comes to choosing the house of your dreams. Set a realistic budget and stick to it, no matter how tempting it may be to purchase that updated, 4,000 square foot house with the in-ground pool and 10 acres of land. Someday, if your fortunes improve, maybe you can upgrade to a higher level. Today, be realistic and sensible. Remember, this is an investment as well as being your home.
- Once you know what your mortgage payment will be, you have the advantage of knowing that your fixed rate mortgage payment will not increase over time, unlike the perils of renting, where you can expect an annual rent increase. As your employment status improves and you get a few raises, you can more easily add additional money to your monthly payment. Even a small extra payment can work wonders to reduce your 30-year mortgage by several years.
- Carrying a mortgage can give you significant tax advantages. The money you save in taxes can be wisely applied to your mortgage balance, once again taking months or years off the final payoff.
- A simple trick used by many people is the bi-weekly payment option. In doing this, you make half of your typical mortgage payment every two weeks, essentially making 13 mortgage payments each calendar year instead of 12. This method will shave years off the back end of your mortgage and save you many thousands of dollars in interest over the life of the loan.
- Shop around for the best deal in mortgage rates right from the start. But, don’t stop there. Interest rates rise and fall with fluctuations in the economy. If you’ve been paying on your mortgage for a number of years and interest rates take a major drop, it could well be in your best interest to refinance. While you’re at it, consider refinancing to a 15-year fixed rate mortgage, if you can swing it. If you do, you will be rewarded with a debt-free home much sooner than you ever imagined.
Owning your home free and clear is a bedrock decision for a sound financial future. It can seem overwhelming at the time of purchase to imagine ever owning a mortgage-free home but, with a little attention to detail, you can pay off your mortgage faster than the 30- year commitment you took on initially. It could be the best financial decision you ever make.