How To Pay Your Mortgage Faster:
Buying a house comes with bunch of joy, happiness & a 30-year mortgage. Mortgage is the biggest single most commitment in people’s lives. No wonder everyone wishes to get out of mortgage as early & quickly as possible.
There are certain rules one can follow to not only keep the Mortgage in check but also smash it out of the park in quick time. Let’s examine how these simple changes make massive difference in reducing a 30-year loan & living mortgage free for rest of your life.
Let’s look at an example of $500,000 loan. Assuming you are 30 years of age & we want to get you mortgage free before you turn 50.
Table Of Contents
Loan stats (approx. or rounded):
|Principal Amount||$ 500,000|
|Monthly Payments||$ 2,387|
|Total Interest||$ 359,348|
|Total Repaid||$ 859,348|
Here are the 4 Tips To Living Mortgage Free Life
Never underestimate the power of small change. By simply rounding payments from $2387 to $2400 (additional payment of $ 13 per month) can save you a whopping $ 4,200 worth of interest during loan term. Even better if you round up payments to $2500 a month. You could be free of mortgage in 28 years, which is a saving of $ 34,000 approximately in interest payments. This is a reduction of 2 years. You can be mortgage free by 58 just by implementing this simple strategy.
Changing Payments from monthly to Fortnightly:
Changing payments from Monthly to fortnightly can make a small difference to how soon you can pay your mortgage, in this scenario, changing payments can reduce overall term by 6 years. Change your monthly payments from $ 2500 per month to $ 1250 per fortnight. This will reduce the over all term from 30 to 24 years, which means you can be mortgage free by 54.
Regular Additional Payments:
Of-course making additional payments will help not only reduce principal amount but also interest in the long term, the more you put in the loan pot, the quicker you can be mortgage free.
In the initial stages of loan term bulk of your payments are allocated against interest & the quicker you can start making additional payments the faster you can reduce interest amounts.
Let’s say you are paying an additional $5000 per year, we all understand it is a big sum to pay year after year, however if we split it, the additional payment of $5000 ($ 415 a month) will shave off another 5 years, this will get you mortgage free by age 49.
Change in interest rates:
If you are lucky enough to see a decrease in interest rate, it might be very tempting to reduce your payments, after all who does not want a few more bucks in the back pocket, however by not changing your payments when interest rates are in your favor can substantially decrease the overall loan term.
A simple change of 0.5% will not only save you 10’s of thousands on dollars but also can reduce the loan term by another 2 years. This means you will be free of house loan by 47.
Some of the other things you can do to reduce loan term are keeping loan term flexible so that you can move to an institution that is offering lower interest rate.
Take advantage of offset sometimes called as revolving bank accounts whereby you can off set your savings against loan amount. This will ensure that you have some cash available should you need it for a rainy day.
There are several other ways of reducing interest payments. Obviously paying principal does not change so the only way to speed up things is to reduce interest amounts.
Hopefully there are few takeaways from this article & will help you in reducing your mortgage term by 50%.