Many of us make a mortgage payment month after month, but dream of the day we will own our house free and clear.
By thinking a little differently and more strategically, you can reduce your mortgage debt faster. Here are some tips for speeding up the payoff process.
Break up your payments
Consider breaking up one large monthly payment into two smaller payments.
For example, if your monthly mortgage amount is $1,000, pay $500 at the beginning of the month and the remainder on the due date. Making payments in this manner allows you to reduce the amount of interest over the duration of the loan.
It also reduces the length of the loan. For more information, visit Bankrate’s biweekly mortgage calculator to determine how your loan duration and the amount of interest you pay can be reduced.
Many people who want to pay off their loan faster opt for shorter loan terms, such as a 10-, 15-, or 20-year loan. While these loans allow consumers to pay less interest over time, they come at the expense of higher monthly payments.
For example, a $100,000 loan financed at 5 percent over 15 years would require a monthly payment of $790. By contrast, the same loan financed at 5 percent over 30 years requires a monthly payment of just $536.
One alternative to taking out a loan with a shorter term is to choose a 30-year loan, but make payments as if it were a 15-year loan. This way, you are not required to make the higher payme
nts, but can do so as your comfort level allows.
The biggest advantage of this technique is that it gives you more flexibility. If an unexpected expense occurs, simply pay the required amount on your mortgage loan, and nothing more.
Direct all extra cash to your mortgage
Dedicate bonuses, windfalls, tax refunds or other unexpected cash to paying down your mortgage principal. It doesn’t have to be much, but adding a little money can help reduce the loan over time.
For example, making one extra payment yearly on a 30-year loan can reduce the loan duration significantly — even by a number of years, depending on the payment and interest terms. Every extra dollar you pay toward a mortgage helps you get out of debt faster.
Remember, financial healing starts with taking things step-by-step each and every day.
Kemberley Washington is a professor at Dillard University in New Orleans and certified public accountant. She writes a personal finance blog at kemberley.com. Follow her on Twitter: @kemwashcpa.