Depending on the ways people pay their mortgage, this method of providing a roof over your head can go from being a bargain to being a complete disaster. The crisis that struck the world 7 years ago left a lot of mortgage payers without their homes, but on the other hand it also served as an incentive to others to pay their loans faster. Although for some payers being mortgage free sounds too good to be true, it is actually possible, with elaborate planning and cutting lots of unnecessary costs. Most people are acting too hesitant when they have the chance to make some additional payments. Some are waging between investing money on the market and paying of mortgages. There’s no doubt that expert brokers should choose the first option, but when unskilled investors choose to invest some unexpected income in stocks there’s a great possibility they will lose their investments and miss the chance to pay of their mortgages earlier.
Fortunately there are lots of strategies how people can pay off their mortgages faster, which will sometimes leave them with enough money for investing in some other costly projects. In this article we’re going to review some of these strategies.
Bi-Weekly Payment Plan
This plan allows mortgage owners to pay 26 half-payments during one year, instead of paying 12 full ones. In total it is like paying one additional full payment a year, and that’s not the only benefit of bi-weekly payment plans. When a mortgage owner pays one half-payment it goes directly to his/her balance which leads to smaller interest rates. If we take the example of a 30 year mortgage of $200,000 that comes with a 6,5% interest, a standard monthly payment will be $1,264. With a bi-weekly payment plan, a mortgage owner is obliged to pay $632 each two weeks, which results in the mortgage being fully paid after only 24 years. This kind of estimations can be easily made with this bi-weekly mortgage calculator that can be easily found online. Mortgage owners should also keep in mind that most loaners charge service fees for converting regular mortgage plans into bi-weekly ones, but this is nothing compared to the benefits that this plan provides to the payers.
Rounding Up Payments
When paying off a mortgage every dollar is useful. Payers should always round up their payments on the sum that’s the most they can afford. If the monthly payment is $1,365, paying $1,500 will cut more than one payment a year. The extra $135 won’t do much for the home budget, but giving an extra payment a year can cut the mortgage period for more than five years (depending on the payment plan).
Invest All Unexpected Income into Mortgage Payments
From time to time people receive large sums of money they weren’t expecting to. These can be some large dividends from stocks they own, birthday presents, work bonuses, etc. Investing this money in paying off a mortgage is a great idea because it definitely won’t have an impact on the home budget because nobody expected it in the first place. This is a great way to pay off the mortgage faster. The only bad thing about this plan is that people like to spend all unexpected income on shopping or hedonism. Those who are able to overcome these urges will pay off their mortgage much faster.
This is maybe not as good as the previous options because it involves taking another loan, but it is a useful strategy when finding great loan deals at low interest rates. Refinancing the mortgage during the second quarter will lower its rate for 1,5%, which for a $200,000 mortgage is around $3,000 of interest payment savings in just one year. For refinancing a mortgage, payers can choose an affordable deal from the bank in which they already have an account or from specialized mortgage brokers. Both of these institutions will ask for lot of paper work and explanations so they can be sure that their client can afford to take the new loan.