7 Tips to Help You Pay Your Mortgage
7 Tips to Help You Pay Your Mortgage Faster and Save You Thousands of Dollars.
There's
a major sense of accomplishment and peace of mind of owning your home
outright. Paying off your mortgage sooner can make sound financial
sense by saving you thousands of dollars in interest costs. Learning
how to save on your mortgage can slice years off your loan. Finding out
if you can save on your mortgage payments won't cost you anything, and
you will discover whether you have the best loan available for your
individual circumstances.
2- Select weekly or bi-weekly mortgage payments. A bi-weekly
mortgage payment means you're making 26 half-payments instead of 12
monthly payments. But keep in mind that unless your initial mortgage is
set up as bi-weekly, some lenders charge an upfront fee of $300-$400 to
make bi-weekly payments, and even though you're making a payment every
two weeks, the lender only applies it once a month.
If you make bi-weekly payments of $415 instead of monthly payments
of $830, you could save almost $27,000 in interest over the entire
amortization period of your mortgage, and you could own your home about
4-1/2 years sooner.
While paying down a mortgage quickly may be a wise decision for many
homeowners, it's not for everyone. For example, you may want to switch
to investing in mutual funds when yields return 10-12% annually. For
most people though, this is not a mathematical issue but one of
security, as they just want that mortgage paid off. For people who are
very debt-averse, the peace of mind of paying off the house more
quickly is worth the price.
1- Shop around for the best mortgage possible with your credit score.
When a mortgage company has a small overhead cost to stay in business
it typically means that they will not charge you unreasonable ongoing
service fees. Make sure you know the fees charged by your mortgage
company before you sign on a loan.
3- Prepay a little extra every month,
or any time during the term of your mortgage. Increasing your payment
by even a few dollars each month will pay down your principal amount
faster. It is a good idea to pay 10-15% more each month. This amount
shouldn’t put too much extra burden on you, and it will help to pay off
your mortgage much faster. For example, if you increased your mortgage
payments by just $170 from $830 to $1,000, you could save almost
$48,000 in interest over the entire amortization period of your
mortgage, and you could own your home about 8 years sooner.
4. Make an annual lump sum payment.
Use your tax refund, work bonus or any extra money you can save and
apply it directly to your principal amount. Check your mortgage
documents to find out how often you can prepay and in what amount. Many
loans don't prohibit you from doing this, however the lender may have
parameters on how many extra payments you can make. Ask this question
when shopping for a mortgage loan.
5. Pay as much as you can at renewal time.
Most mortgages become open at renewal. This means you can pay as much
as you want on your mortgage. If you chose a 5-year, fixed-rate term,
and made a $10,000 lump-sum payment every time your mortgage came up
for renewal, you would save about $37,481 in interest over the entire
amortization period of your mortgage.
6. Red flag your extra payments.
Always check your mortgage statement to make sure that any extra
payments you made are being counted against the principal and that your
bank has accurately documented your payments. Make the extra principal
payments on a separate cheque and make a note on the memo line stating
that the payment should be applied to principal reduction only. At tax
time, tally up those payments and make sure they've been applied
correctly.
7. Stay informed. Once you have a mortgage,
aside from making the payments, it's easy to forget about it
altogether. By keeping up-to-date on interest rates and new products
could save you money. You may want to shop for another product that
better suits your needs. For example, to qualify for a mortgage, you
may have started out with a lower-rate adjustable rate mortgage, but
you want to switch to a more long-term affordable fixed-rate mortgage
later.
When You Should Hold Off on Paying Your Mortgage Faster?
Secondly, if you are planning on
moving soon, you may want to hold off investing money into your
existing home as you may need the money for a down-payment, closing
costs or buying new furniture for your new home.
As you can
see, with a little research, you could save on your mortgage. The truth
is: the banks won’t tell you how to save money on your mortgage as they
want to make the interest on the money that they have loaned to you. If
they were to help you save money, they would lose money and their
profits would stagnate. Make sure that if you implement changes to save
on your mortgage it is the right decision for you.
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