Use An Unexpected Windfall To Pay Down Your Loan
Did you get a surprise bonus from work or receive a large inheritance? While the instinct may be to spend this money or put it in the bank, another option is to pay down your mortgage balance.
Before you write a check and put it in the mail or press send on your online payment, talk to your bank first. Different banks have different rules, and, in some cases, your lender may charge a fee if you pay off your loan early. Youll also want to confirm the full amount goes to the loan principal. A quick phone call can help you determine whether you need to do anything to make sure your money goes to the right place.
When To Pay Off Your Mortgage On Time
Its not always a good idea to put extra money toward your mortgage. Ask yourself these questions to figure out if you should pay your mortgage on time instead of early:
- Do I have other debts to pay off? Credit cards and loans typically have higher interest rates than mortgages, so they accrue interest faster. Youll save more money if you pay down high-interest debts first.
- Do I have other financial obligations to consider? Contributing money to your retirement account and emergency savings account are important financial goals. If these financial goals are lacking, consider funding these before putting extra money toward your mortgage.
- Do I have other big expenses coming up? If you need to save up for something big, like your childs college tuition or a new car, then you might want to focus on these goals before paying down your mortgage.
- Does my lender charge a prepayment penalty? If youre not sure whether your mortgage comes with this fee, call the lender and ask. Youll need to calculate the penalty and figure out if you still come out ahead.
Make One Extra Payment Every Year
Making just one extra payment towards the principal of your mortgage a year can help take years off the life of your loan. This method reduces the total amount of interest you pay, while helping you fast-track your mortgage payoff. Making one extra payment towards principal every year is a good option for homeowners who usually receive one or more of the following:
- A year-end or lump-sum bonus from an employer
- A yearly tax refund
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Easy Ways To Pay Off Your Home Loan Faster
A bond is one of the cheapest ways to borrow money for most of us, but it can still rack up some serious interest over a typical 20-year loan term.
In fact, paid off at the minimum rate over the maximum duration, youll usually end up paying more than 100% of the original value of the loan in interest.
This is according to Mike van Alphen, National Manager for Rawson Finance, the Rawson Property Groups in-house bond origination division, who says there is a silver lining to this situation.
The good news is that banks arent allowed to lock you into that 20-year loan term its a maximum length, not a minimum, and theres nothing to stop you paying off your loan faster in order to decrease the amount of interest you have to pay.
According to van Alphen there are actually quite a few ways to pay off your bond faster that wont necessarily put a huge strain on your finances.
Here are his top three tips to being bond-free in under 20 years:
1. Put a little extra in every month
The first and most obvious way to reduce your loan term is to put in extra money every month, he says.
Youd be surprised at what a big difference just a couple of hundred rand a month can make.
He uses the average loan of R900 000 at 9.25% interest as an example.
Your minimum monthly repayments over 20 years would be R8 242.80. If you bump that up to R8 500, just R257.20 extra every month, you cut more than a year and a half off of your loan term, and save R103 348.80 in interest, he says.
Should I Refinance My Mortgage
9 Minute Read | September 28, 2021
Ever since the Federal Reserve dropped interest rates in 2020, theres been a new wave of hype around getting your mortgage refinanced. And for good reason too.
Last year, the annual average interest rates for common mortgages was between 2.613.11%the lowest theyve been since Freddie Mac started reporting several decades ago!1,2 And with the Feds saying they wont raise interest rates until 2023, now even more folks are wondering, Should I refinance my mortgage?3
Lower interest rates are great and all, but how do you know if its the right time for you to actually do a mortgage refinance? Well show you how to make a smart decision.
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Use A Lump Sum To Pay Off Your Loan Faster
Tax refund, bonus, commission, inheritance, yard sale, gift or lottery win? Whatever it may be, an unexpected windfall can be used to pay off a chunk of the principal in one fell swoop.
So there you have it. Check out our loan payoff calculator to see how overpayments can help you save money in the long run.
Rent Out Extra Space In Your House
If you want to make extra payments but dont know where to find the money in your budget, consider putting your house to work.
Some examples of what you could do include:
- Renting out an extra room
- Turning an accessory dwelling unit into an Airbnb
- Renting out space in your garage for storage
- Renting out a parking spot
- Renting your pool or backyard out to someone for an event
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Paying Off Your Mortgage Early: When And How To Do It
There are a number of strategies you can follow to pay off your mortgage faster. By refinancing or making extra quarterly payments, you can shave months, or even years, off your pay-off date.
Edited byChris JenningsUpdated October 12, 2021
Our goal is to give you the tools and confidence you need to improve your finances. Although we receive compensation from our partner lenders, whom we will always identify, all opinions are our own. Credible Operations, Inc. NMLS # 1681276, is referred to here as “Credible.”
When you take out a mortgage, you might feel uneasy at the thought of carrying debt and paying high interest costs over time. Paying off your mortgage early, however, could help you save money and rid yourself of some financial stress.
Before you make extra mortgage payments or zero out the debt entirely, you should consider whether its the best move for you. It may make sense in some circumstances, but not all.
Heres what you need to know about paying off your mortgage early:
Create A Budget And Stick To It
The most effective way to gain the funds to pay off your mortgage early is to reduce your number of nonessential expenses. Eliminating vacations, unnecessary purchases and dinners out can go a long way in helping you to reduce your personal spending. When deciding to pay off your mortgage early, make sure you begin by developing a budget for all of your spending. A personal budget can go a long way in helping you monitor your finances and become more intentional about what you do spend.
Paying off your mortgage faster can be tempting, as it enables you to finally own your home outright, get ahead of your debts and start investing your money. However, you dont want to use all your available funds on your mortgage only to find that youve left yourself without enough money to make it through any emergencies that may arise. To avoid such pitfalls, its crucial that you educate yourself on your options before deciding to pay off your mortgage early.
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How To Pay Off A Home Mortgage Faster
By The Acorn Staff | on January 06, 2022
Homes are by nature expensive and most home buyers cannot afford to purchase a home outright. Most home buyers finance a home purchase with a mortgage. A mortgage allows homeowners to spread the payments for a home loan across many years. The result? Mortgages can make home ownership much more attainable for the average home buyer.
Now is a great time to buy
Currently, mortgage rates are at historic lows, meaning that the cost of borrowing funds is lower than it has been in previous years.
Vanderbilt Mortgage is offering new home buyers who chose to finance their home purchase with Vanderbilt 60 days with no payments after their mortgage loan funds. This provides new home buyers time to settle into their new home and pay for the costs associated with moving without having to immediately make the first mortgage payment.
Benefits to paying off a mortgage faster
There are advantages to paying off a mortgage before it reaches full term.
Paying down a mortgage early builds equity for resale. Paying down the principal balance on a mortgage can build equity in a home faster.
Equity is the market value of the home, minus the amount owed on the mortgage. For example, if a home is worth $150,000 and $100,000 is owed on the mortgage, then there is $50,000 worth of equity in the home.
This equity can then be used when selling the home for a down payment on the next home.
How to pay off a mortgage faster
Go at the right pace
Keep Your Payments The Same When Changing Your Mortgage
When you renew your mortgage, you may be able to get a lower interest rate.
Some mortgage lenders may allow you to extend the length of your mortgage before the end of your term. Lenders call this early renewal option the blend-and-extend option. They do so because your old interest rate and the new terms interest rate are blended.
When your interest rate is lower, you have the option to reduce the amount of your regular payments. If you decide to keep your regular payments the same, you can pay off your mortgage faster.
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Should You Pay Off Your Mortgage Early
Whether you should pay your mortgage off early depends on many factors, including the interest rate of your current loan and your personal risk tolerance.
Start by considering the opportunity cost. If you repay your mortgage ahead of schedule, youre putting money into the mortgage when you could have used those funds for other financial priorities. Youll save on interest, of course, but if you invested the extra payments elsewhere instead of putting them toward your mortgage, you might find youd have earned a higher return.
On the other hand, if you know youre likely to spend that extra money if you dont put it toward your mortgage, making additional payments can be a good idea. The peace of mind that you get from owning your home mortgage-free can also be worthwhile, and is important to consider.
Also, think about how much cash you have available for emergencies. You dont want to tie all of your money up in your home and have no way to access it quickly if you encounter a crisis.
Ultimately, with mortgage rates still low, its generally better in the long run to hold a mortgage with a low rate now and to invest your extra cash. Still, you can check Bankrates mortgage payoff calculator to see how much you can save by settling your mortgage early if youre set on doing so.
How An Amortization Schedule Works
How mortgages workand why even modest added payments can go a long wayis best understood by looking at a typical amortization schedule. Basically, thats a table listing each scheduled mortgage payment in chronological order, beginning with the first payment and ending with the last one.
In an amortization schedule, every monthly payment is split into two parts: an interest payment and a principal payment. Early in the amortization schedule, a large percentage of the total payment goes toward interest, with a small percentage going toward principal. As you continue to make mortgage payments over the months and years to come, the amount allotted to interest gradually decreases and the amount allotted to principal increases.
Using a mortgage calculator is a good resource to understand these amounts.
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Make An Extra Mortgage Payment Every Year
Throw all or a portion of new-found money like a year-end bonus or inheritance at the mortgage. The earlier into the loan you do this, the more of an impact it will have. In a typical 30-year mortgage, about half the total interest you pay will accumulate in the first 10 years of your loan. That is because your interest rate is calculated against the very high principle amount you owe in the early years.
How To Pay Your Mortgage Off Early And Why You Might Want To Consider It
According to the National Association of REALTORS®, 87% of home buyers used a mortgage to finance their home in 2020. But mortgages can be daunting to take on, considering that theyre often 30-year commitments.
You may need to take out a loan to purchase your home, but do you want to be in debt for the next 3 decades? The good news is that in many cases, you can pay off your mortgage early. But before you decide to do that, there are some things you should know about the proper procedure.
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Will Your Mortgage Company Let You Pay It Off Early
When you pay off your mortgage faster, you pay less interest, and your mortgage company makes less money off your loan. For this reason, not all mortgage companies permit their clients to pay off their loans earlier than stipulated in their contract. So, before you make any grand plans, double-check that your lender will, in fact, allow you to pay off your mortgage faster.
Benefits Of An Early Mortgage Payoff
There are two main benefits of paying a mortgage early less interest paid and more home equity faster.
But paying off the mortgage is not necessarily always the best choice if you have more expensive debt, like outstanding credit card balances. Or if you havent yet saved for retirement. You may also want that money to purchase additional real estate, as opposed to it being locked up in your home.
This calculator can at least do the math portion to illustrate the power of paying extra and paying off your mortgage ahead of schedule. Youll then need to weigh those savings against other options like paying your credit cards or ensuring youve saved for retirement.
In other words, make sure youre actually saving money by allocating a larger amount of money toward paying off the mortgage as opposed to putting it elsewhere.
If you want to see the payment schedule, which details every monthly payment based on your inputs, simply tick the box. This will also show you your loan balance each month along with the home equity you are accruing at an ideally faster rate thanks to those additional payments.
To determine your home equity, simply take your current property value and subtract the outstanding loan balance. For example, if your home is worth $500,000 and your loan balance is $300,000, youve got a rather attractive $200,000 in home equity!
And thats all it takes to use this mortgage calculator with extra payments. Happy mortgage saving!
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What Does It Mean To Pay Off Your Mortgage Early
Many homeowners would love to fast forward to when they own their houses outright and no longer have to worry about monthly mortgage payments. As a result, the idea of paying off their mortgage early could be worth exploring for some people. This will allow you to lessen the amount of interest youll pay over the term of your loan, all while giving you the ability to become the homes full owner earlier than expected.
There are a few different methods by which you can go about paying early. The simplest method is just to make extra payments outside of your normal monthly payments. Provided this route doesnt result in extra fees from your lender, you can send 13 checks each year instead of 12 . You can also increase your monthly payment. By paying more each month, youll pay off the entirety of the loan earlier than the scheduled time.
If youre considering paying off your mortgage ahead of time, make sure you avoid these five critical mistakes.
In Fact Put All Your Extra Money Toward Your Mortgage
The same principle holds true for any extra money you have while youre still paying off your mortgage. Whether youve got extra money from a raise, bonus, gift, tax return, inheritance, or even a lucrative night at bingo, put it toward the mortgage and get it paid off faster.
Michael Saves is a finance blogger who started writing about savings after paying off his $86,000 mortgage in just two years. A big part of his strategy was working more so hed have more money to put toward the mortgage.
First, I made a commitment to work 10 extra hours per week, so 50 hours total. In addition to volunteering for overtime at my full-time job, I waited tables on the weekends and took care of pets around the holidays, he says.
He also used apps like Mint to track his spending and make sure that he wasnt wasting too much money in other areas.
On top of scrimping and saving as much as he could, another big part of his approach was making sure every penny went to the mortgage: Any extra money that came my way went to the mortgage, including work bonuses, birthday cash and credit card rewards, he says.
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