Could you imagine life without a mortgage? If you are a homeowner, often times the thought of a 20 or 30 year mortgage might be overwhelming.
Here, specialists from Desert Schools Federal Credit Union provide these tips on ways to better manage and pay off your mortgage.
Refinance Into a 15, 20 or 30-Year Loan
While most financial institutions default to a 30-year loan period, most will also offer a 15 or 20-year loan option. These shorter loan periods are usually granted a lower interest rate and will accelerate the payment on the principal.
If you currently hold a 30-year loan and a higher monthly payment on a 15 or 20-year loan isn’t an option, consider refinancing with a new 30-year loan at a lower interest rate. If your loan began prior to the recession when interest rates were typically five or six percent, you may be missing an opportunity to reduce your interest rate. If you are able to refinance, the key to paying off your mortgage early is to stick with your original monthly payment. The extra amount you pay each month will be applied to the principle, ultimately accelerating your payoff date. Your monthly budget won’t change, but you will pay off your mortgage faster.
Make One More Payment A Year
A mortgage payment is a big part of a monthly budget, but consider looking at the year as a whole instead of month-to-month. It is recommended to make one extra payment each year. This additional payment will reduce the length of the loan.
If adding one extra single payment a year isn’t doable, consider making regular biweekly payments. If your monthly payment is $900, make payments of $450 every two weeks. This divided schedule will ultimately result in more money being applied toward the principle of the loan, and result in one extra payment a year across 26 biweekly pay periods.
It is recommended before making any changes to your current payment plan that you check with your financial institution to ensure that the company will accept extra payments without charging a penalty. Make sure to speak with a representative to ensure that your payment plan will benefit the principle as opposed to the interest on the loan.
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