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Americans currently hold over $10 trillion in mortgage debt. If you're one of them, chances are strong that monthly mortgage payment is one of your biggest bills. While a home may be one of the most significant investments you ever make, that monthly mortgage payment is often a major financial burden. It can limit your ability to take advantage of other financial opportunities, and, along with your credit card and other debts, can make it difficult to save or even have disposable income to enjoy each month. However, it doesn't have to be that way. You can take several steps to address your mortgage debt faster than the terms of your current loan. Here are three great tips you can consider to pay off your home loan earlier than expected.
Get a Shorter Loan
One of the most straightforward ways to pay off your loan earlier than expected is to get a shorter loan. If you have a newer 30-year home loan, refinancing to a 15-year mortgage will cut your repayment period nearly in half. The shortened payment period means you'll own your house in full much sooner than when you took out your original loan. In most cases, it's easy to refinance a home; you may even be able to refinance with the lender that provided your original loan.
However, there are frequently fees and expenses associated with loan refinancing, so you should be prepared for that. Additionally, your monthly payments on the new loan will be considerably higher. Finally, if your credit rating has declined considerably since you obtained your original loan, you may not be eligible to refinance your current home loan. If any of these circumstances apply, then you may have to consider alternative methods to pay off your mortgage faster.
Another great way to pay off your mortgage faster is to pay more than the minimum mortgage payments. Every dollar you commit toward your home loan's principal will help you pay off the loan faster than the mortgage period. Paying your home loan off faster will also save you a considerable amount of money you'd otherwise owe as interest expenses. A good goal to set when paying down a home loan's principal is to apply the equivalent of one extra loan payment each year; if you divide this number by 12 and then commit that extra on a monthly basis, it's usually a manageable expense. Additionally, committing any unexpected financial windfalls toward your mortgage principal, such as an inheritance or bonus, is another great way to put that money to use paying down debt.
Additional payments towards your home loan principal may not be the best choice for everyone, however. If you have large credit card balances or other high-interest debt, it may make more sense to deal with those debts first. Additionally, if your current budget doesn't allow for significant funds for extra payments, paying extra on your mortgage may not even be possible. Finally, stipulations on some home loans don't allow early repayment, or otherwise charge penalty fees, so make sure you understand the terms of your loan if you decide to pay extra each month.
Make Bi-weekly Payments
Another great strategy to pay off your home loan sooner than expected is to make bi-weekly payments. Paying half of your mortgage payment every two weeks allows you to pay more money toward your principal each year with minimal stress or impact on your overall finances. This simple process is extremely effective. For example, let's assume that your overall mortgage payment is $1,500 each month. If you stick to your monthly payment, you'll make $18,000 in payments each year. However, if you pay your mortgage every two weeks, your annual payment will be bigger. If you pay a half month's equivalent of $750 every two weeks, you'll end up making 26 payments, for a total of $19,500. The bi-weekly payment strategy will equate to an extra mortgage payment each year.
While the bi-weekly payment strategy spreads the loan repayment burden across an entire month, it still does require you to pay more toward your mortgage each year. If you have other debts, or you have a tight budget, this may not be the best loan repayment option to consider. It will also increase the total number of financial transactions you have each month as well; if you don't have a great deal of time to pay bills or focus on your finances, this plan may not appeal to you.
Get on Track to Becoming Mortgage-Free
Paying off your mortgage sooner than expected can ease your financial burden and give you the flexibility to pursue other financial opportunities. These three tips can all help you pay off your mortgage faster than the terms of your original home loan. So, find the option that works best for you and get on track to becoming mortgage-free today.