Buying a home is one of the largest financial purchases we’ll make in our lives, thus if you have the financial ability to do so, you may look to pay it off as soon as possible. The benefit to paying off debt sooner beyond the obvious of not having a monthly mortgage payment, is that it also gives you the option to purchase a second home or an investment property.
“42% of Americans say that their mortgage is the debt they most want to eliminate.”
Do you have enough cash flow to pay off your mortgage faster? Here are the top things to consider:
Do you have the cash available to pay down the debt? If you’ve accumulated 6 months in emergency funds and don’t have additional loans or credit card debt, the mortgage should be your next target.
How long do you plan to stay in the home? It may make more sense to keep your money liquid versus tied up in a home you plan to sell within a few years.
Is there enough cash to still save for retirement and other financial goals?
“1 in 3 homeowners own their home free and clear.”
If you’ve answered yes to the above, read on for tips on how to pay off your mortgage debt faster.
1. Make bi-weekly mortgage payments
Bi-weekly payments involve 26 half-payments each year instead of the standard 12 full payments. By making 13 payments each year, you’ll pay down the principal sooner and reduce the amount of interest you’ll pay over the long run.
2. Increase your mortgage payment
You can also increase the amount you pay towards the principal of the payment each month. Most people have higher incomes a few years into their mortgage than they did when they first took it out. Keeping your payment on par with your increases in income will help reduce your mortgage amount significantly, and may also reduce the amount of your monthly payment over time.
3. Make additional payments
If bi-weekly payments or increasing your monthly mortgage payment are not feasible, try to make extra payments when you can. If you have extra money at the end of the year, put it toward your principal.
4. Refinance with a short-term mortgage
If you have a 30-year mortgage, you can refinance the loan for 10, 15 or 20 years. While the payments will be higher each month, you’ll be able to pay the loan off sooner.
Source: Buffini and Company