Becoming a homeowner can be stressful, especially if your financial situation isn’t sparkling. A good agent can help with getting a deal and offer a suitable payment plan. But paying off a mortgage loan needs careful planning early so owning a house won’t become a nightmare later.
Usually, the payment is divided between the principal amount and the interest. The monthly payments often go towards interest. Paying extra for the principal amount will reduce the amount spent on interest. In other words, the faster you go with the principal, the less you pay for the interest.
Here are 5 working tips to help you pay off your mortgage early.
- Bi-weekly payment
- Short term loan
- Cut spendings
- Cash payment
1. Bi-weekly payment
Bi-weekly means that payment is made every two weeks. There are 52 weeks in a year meaning an option of a 26 payment plan. A regular mortgage monthly plan has an option of 24 payments. Therefore, by adding extra cash to the principal amount, you pay off your mortgage faster.
The more you pay off, the more equity you get by eliminating the interest amount. Try paying weekly to make it easier to secure another large amount in a short period. It’s easier to make payments weekly as at this point the monthly sum won’t look that big and planning your future spendings gets more understandable, especially if you get paid every week.
2. Short term loan
Reducing the terms of the loan will also reduce the interest rate as less interest will get accumulated. If you pay on time, your credit score goes up allowing you to negotiate on the interest rate.
Short term loans require less time to process the money making it easier to own your home faster. A long term debt might be tricky compared to a short term which usually is up to 18 months as you may unexpectedly run into financial breakdown. With a short term plan, the future of the economy of a region gets more predictable allowing you to avoid economical issues like housing recession.
Downsizing means buying a smaller house than currently owned. In the case of switching to a smaller building, the principal and the monthly fees may be easier for you to manage compared to the bigger house. Purchasing a small house has more significant equity giving you options on living in your new home.
Just think of it. A smaller house requires less maintenance and bills to take care of, making you save on upkeep. The overall cost decreases. What’s great, the smaller space eliminates household tasks giving you more time to do things you love. You can spend more time playing with your kids instead of vacuuming or sweeping. A smaller place also feels more comfortable and cozy.
Renovation of a small house won’t cost you a fortune and is be affordable without you having to take night shifts. You won’t need an enormous amount of furniture and things just to make your home not look empty which additionally helps you save money that you would otherwise spend on the interior design.
4. Cut spendings
Know where your money goes. Daily saving on small things like a to-go coffee can help in channeling the cash towards the mortgage payment. It would be hard to have a change of lifestyle that you are used to, but it is worth it at the end of it all.
Start cooking at home to eliminate the money spent on eating outside. If you don’t know how to cut off that kind of expense, just take a closer look at what eating out costs you. Assuming your lunch at Starbucks costs $15 and you go there every day. The monthly total is about $450 that could be used to help pay off your mortgage faster. How? By taking lunch boxes with you. Preparing food and grabbing it with you to work instead of heading to a restaurant will definitely save some cash. Another bonus of switching to food preps is that you’ll eat healthy food compared to pizzas, burgers, and tacos reach in carbs and fats.
To save even more and pay a mortgage faster, stop buying things that you do not actually need. Avoid spending on brand-new clothes, expensive shoes, or just-to-the-market electronics that aren’t any better that things you already own. As long as it’s not an emergency, you can use what you have to the maximum. Just keep in mind that brands need to sell new collections but it’s your choice whether to keep up with them or get your house paid off in the first place.
The best plan to purchase a home is through zero debt. If you are not in a hurry to get a house, save until you have the desired amount. With cash payment, the interest rate gets eliminated as well as other fees that are involved. You only pay the principal amount. In that case, you are saving a considerable amount that you would otherwise have to pay for the interest.
Cash payment means there is no monthly commitment for a mortgage payment, and the money can be saved for other purposes. Many sellers prefer cash payment methods and are ready to offer excellent service and best deals.