Strategies To Pay Off Your Mortgage Sooner
Your home mortgage is probably the longest loan you'll ever pay off in your life, since most mortgages come with 15- or 30-year terms. Few other personal loans have payoff time-frames anywhere close to multiple decades. With some wise tactics, however, you can reduce how long you have to pay your mortgage. Here are strategies to help pay off your mortgage sooner.
Save Up for a Larger Down Payment
Saving up for a larger down payment obviously can help you pay off your mortgage faster because you don't need to pay back as much if you borrow less at closing. Many people don't realize just how much of an effect a larger down payment can have on their payoff time.
Specifically, you'll be able to greatly shorten the payoff timeline for your mortgage if you can manage to save up a 20 percent or larger down payment. With a 20 percent down payment, you don't need to purchase private mortgage insurance. This is an insurance that protects the lender but is paid for by you. The money you pay for the insurance isn't applied toward your principal.
For example, assume you put down less than 20 percent and have to purchase private mortgage insurance for $50 per month. That's $50 extra that you pay and don't see a direct benefit from.
In contrast, you could pay an extra $50 toward your mortgage if you put 20 percent down and didn't need to pay private mortgage insurance. An extra $50 per month payment would result in an additional $600 per year being applied to your principal. Over the course of a mortgage, that adds up to a sizeable sum that will have you paying off the loan a lot sooner than scheduled.
Reduce the Interest Rate at Closing
Most mortgages come with an option to buy points when you close on a house. Buying points involves paying an up-front fee in order to reduce the interest rate, and this can have a profound effect on how quickly you're able to pay back the loan. Even though you pay more upfront, you'll have less charged in interest each month.
With less interest charged on your mortgage each month, your mandatory monthly payments will be smaller. You don't have to reduce how much you pay each month, however. You can choose to pay what you would if you didn't buy points, and the extra will be applied to lower your principal. As your loan proceeds, you'll pay off that principal faster.
Contact a lender to learn more about mortgages.