Your home is the costliest purchase you’ll ever make bar none. This is not “small beans” we’re talking here, and most of it is likely to be financed through a mortgage. After all, very few of us if any, have the price of a house hanging around in our savings accounts! How much do you spend on your mortgage every month, and what would you do with the money if you could spend it? It’s a tantalizing thought.
Before you take on your progress towards a debt-free life as a grim duty, revel in the thought of what it will be like when you don’t have that looming financial commitment. Will you save towards an earlier retirement? Perhaps you’ll plan that long-overdue holiday, or maybe it’ll just be a matter of heaving a sigh of relief because the pressure’s off you.
Here’s how to get your mortgage paid off fast without busting a gut!
1. Check your budget
Your bank will be happy to tell you what it thinks you can afford. But can you? You know your personal and household expenses better than anyone else!
Ask your bank what value can shoot for and what the monthly installments will be, but don’t just assume you can afford it because the bank says you can. YOU figure out what you can afford. It’s the best way to avoid uncomfortable surprises once you’re already committed to your payments.
2. Save interest with a 15-year mortgage
Now that you know what you can comfortably afford to pay every month, find out how it translates into a 15-year mortgage. Oh, you can go for a 20 or even a 30-year mortgage, but do you really want the bank to own your home for that long? Plus, you’ll save a substantial sum of money on interest by cutting the time it takes for you to pay it off.
3. Choose a flexible mortgage
While paying off your debt faster sounds like a great idea, you could end up paying penalties because you settled it before the agreed time is over. That’s right, paying off your mortgage faster can cost you!
A flexible mortgage allows you to pay off your mortgage faster without penalties. Plus, it often allows you to redraw excess. Although doing so too often will defeat your object of being debt-free sooner, it’s a lot cheaper than relying on your credit card every time you have an unexpected expense.
Also, the extra money you pay into your mortgage usually saves you more interest than it would earn you in a regular savings account, so a flexible mortgage becomes a good place to stash savings. But if you have a high-yielding fund like a retirement fund, this won’t apply. Weigh your options.
4. Have a clear goal
You can use a mortgage calculator to work out what your earliest realistic payment date might be. Give yourself a little margin for error and set your date. Tell family and friends about it. We’re more likely to meet our goals when we frequently verbalize them.
5. Pay an extra installment
If you pay every two weeks, you’ll effectively make the equivalent of an extra payment every year. Alternatively, if there’s a time of the year when you can expect higher earnings through bonuses or commissions, commit to making your 13th payment then.
6. Save on your spending to boost your mortgage repayments
Check your budget for expenses you can live without. It’s possible to find thousands extra to put into your mortgage if you put your mind to it. We’ve spoken about these big money-savers often, but to remind you of some of the bigger ones, here they are:
- Cut cable. That could give you $600 extra for your mortgage every year.
- Look for a better deal on car insurance. You could save hundreds.
- Make your own work lunch. Supposing you save $3 – $4 a day, you’ll save $783 to $1044 per year.
- Say “bye-bye” to Starbucks (except on special occasions). Based on the average annual Starbucks spend, it costs you over $1,000 per year. Deduct the cost of making your own coffee, and you’re probably looking at a $500 saving.
- Don’t buy clothes unless you need them. We often buy clothes we don’t need just because it’s nice having new things. You could save $1,000 or even more by making do with what you have.
7. Look for extra income streams and know what to do with windfalls
There’s almost always a way to make a few dollars extra if you put your mind to it.
- Wait on tables
- Pet-sit or house-sit
- Sell your crafts at markets or to work colleagues
- Volunteer for overtime
Whatever your source of extra income, the earnings go into speeding up your mortgage settlement. And if you get lucky with a tax refund or a cash gift, you know where to put it!
8. Know when you can ditch your private mortgage insurance (PMI)
Your lender will very likely have insisted that you take out private mortgage insurance. But most lenders will be happy to set you free from this requirement once you’ve paid off 80 percent of your home’s value. When you reach that point, ditch the insurance and add the premium’s value to your mortgage payments.
9. Refinance at a lower rate, but maintain your payment value
Before you take the plunge, check how this will work for you. There will be refinancing charges, so you need contrast your potential savings with the costs. Again, mortgage calculators are great tools for those of us who struggle to calculate things like compound interest.
10. Give yourself incentives
Sticking to a tight budget and denying yourself all luxuries for 10 years, 15 years or more is not sustainable. Sooner or later, you’ll lose patience and splurge! Give yourself shorter-term targets and reward yourself, but base it on your extra contributions to the mortgage to keep it linked to your progress.
For example, if you can boost your mortgage payments by $1,000, allow yourself $100 pocket money for something you’d like but don’t absolutely need. Little luxuries make a difference, and when they’re rare treats, it’s even nicer.
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