Findings of a recent housing survey indicate that 64% of property is owned by the occupants while 30% is mortgaged. This is debt that homeowners would like to get rid of fast.
If you are servicing a mortgage, you definitely would want to clear your payments within the shortest time possible. This is a great way of getting off years of unnecessary interest. Of course, making sure you have the right loan in the first place is the best way to minimize the amount you will have to pay. For example, if you are a veteran you could be offered a mortgage with better rates and you should fully research all your options before deciding on which one should you choose. After you have done that, paying it off as quickly as possible should be your next goal.
The good news is that there are a number of ways you can pay off your mortgage faster so that you live in your home without being answerable to your financial service provider.
- Lessen the repayment term – When working out your monthly affordability of your mortgage, lenders often work with a 25-year repayment term that is the standard duration.
The good news is that this is not cast in stone because if you are able to afford the high monthly repayments, you can reduce this period to just 5 years! Consequently, a shorted mortgage term means a cheaper mortgage.
Here is how you can save by lessening your mortgage repayment period. It would cost you a monthly payment of 1,276 if you are required to repay 229,890 over a period of 25 years, bringing the total interest to a whooping 153,000.
- Exceed your monthly payment limit – By overpaying your monthly mortgage payment, you will have the same effect as shortening your mortgage term. In fact, overpaying makes more sense when interest rates are low.
The good thing is that most lenders will often allow up to 10% off your outstanding loan amount annually without a penalty even in cases where you are locked in a fixed rate.
When you opt for this approach and paid 10% extra that is an equivalent of 120 on your 229,890 mortgage, you will save up to 100,00 in interest payments. Consequently, you will be shot of your mortgage debt by 15 years and six months leaving you able to sell your house and gain the cash from the sale should you so wish.
- Pour in financial windfalls – Instead of making an overpayment of your loan every month, you can pour in one off lump sums like a bonus inheritance will usually have a similar effect when you want to reduce the total interest you are required to pay.
However, if you have a flexible mortgage, this may be capped at 10% of your outstanding balance.
If for instance you paid 20,000 off your 229,890 mortgage, in your twelfth year of your 25-year term, you will save 14,120 in interest payments. In addition, you will be able to clear your mortgage in a little over two years.
- Take an offset mortgage – You may be having savings but you want to hang on them for the rainy day. Even then, you can use this cash to reduce your mortgage debt through an offset deal.
Offset mortgages usually take your total savings balance and subtract them from your mortgage debt so that interest is only charged on the remainder. The long-term result of this is you will pay less interest. Furthermore, if you maintain your monthly payments you can be sure of clearing your debt faster.
- Switch to a mortgage deal that is better – You don’t have to use your hard-earned cash to pay off your mortgage faster. Instead, you should aim to secure the lowest interest rate possible. To achieve this, consider hiring a reliable and knowledgeable mortgage broker (such as these Red Deer mortgage brokers) who can negotiate a better deal with the lender on your behalf.
This calls for you to shop around when looking for your first mortgage or at the end of your current deal. For instance, when you switch from your 229,890, 25-year mortgage at the 4.49 percent for a mortgage that charges 3 percent interest, your repayments will fall from 1,276 to 1,090. Overall, this could save up to 56,000 eventually.