The prospect of a 30 or even 15 year mortgage can feel daunting for even the most financially fit among us. When you factor in interest expenses the cost of your mortgage over the life of your loan will amount to many thousands more than the original loan amount requested. You can minimize some of that expense by using a few of the following tips.
1. After you have addressed other outstanding, higher interest debts consider adding an additional payment of 10% that will be allocated toward the principal amount of your mortgage. When you make your payment it is important that you earmark the additional fund for the principal or your loan company may allocate it for interest. Using this strategy you can pay off your mortgage 5-7 years earlier.
2. Consider a twice monthly payment plan. Some loan providers allow for these types of payments with no additional cost to the homeowner. Other companies offer this benefit for a fee, generally around $300.00 to get the process started. You may want to check with your mortgage provider to learn if they accept payments more than once monthly, and if so if there are any fees involved.
3. Being mindful of any prepayment penalties you might want to consider applying the bulk of any windfall (such as a tax return) you receive to your loan principal.
4. Pay as early in the month as you possible can. Depending on how interest accrues on your loan you can save valuable dollars by paying days early every month.
5. Avoid excessive cash out refinancing. Each time you cash out the equity in your home you are, in essence, starting over.
6. If you are just planning the purchase of a home contribute as much as you are financially able to the down payment. Higher down payments can yield lower interest rates and less money to finance both of which amounts to an easier loan to repay.
7. If you do choose to refinance continue to make your original payment amount to boost equity and retire your debt sooner.
Paying off your mortgage can give you the security you need if you are approaching retirement, considering entrepreneurship, or facing downsizing. Before you make this financial move you should talk with your financial advisor to understand the tax implications. Of course, after you pay off your mortgage that interest is no longer deductible, this may have long term implications that you did not anticipate. If you opt against paying off your mortgage, and you have great discipline, consider banking the money in a high yield savings vehicle. You can pay off your mortgage later when the time is right.