Karista Blog

Want to be Mortgage Free? Here's How.

Read in Tagalog

Do you believe there is a day when you will be mortgage free? It takes hard work, but it can be done! The key is discipline.

Want to be Mortgage Free, Here's How..jpg

Here is a list of 10 ideas that will help you accelerate your mortgage payments, pay down your principal mortgage amount faster, and eventually own your home mortgage free sooner!

While most mortgages are amortized over 25 years, you certainly don't have to take that long to pay out your mortgage completely.

1. Accelerated Bi-Weekly or Weekly Payments

A traditional mortgage splits your mortgage amount into 12 equal monthly payments. Accelerated biweekly is simply taking a regular monthly payment and dividing it in two, but instead of making 24 payments, you make 26. In the case of weekly payment, it means making 52 payments a year instead of just 4 a month or 48 in a year.

The impact of accelerating your payments is significant, this can drop your amortization from 25 years to 21 years!

2. Lump Sum Payments!

If you happen to come into some extra money through an inheritance, bonus at work, tax-return, or lottery win, why not indulge yourself by making it benefit you by reducing the biggest debt you have in your life! If the money is unexpected and you weren't counting on it for anything else... consider putting all of it towards your mortgage. All lump sum payments go directly to the principal mortgage amount and is not a pre-payment of interest.

Most lenders allow a 15% - 20% annual lump sum payment of the original mortgage amount with a minimum lump sum payment of $100.

3. Getting a Raise?

Why not give your mortgage repayment the same raise you get each year? If your income goes up by 10%, so should your mortgage payment. This extra increase in payment goes directly towards principal repayment.

Most lenders will allow a 15% - 20% increase in your regular mortgage payment, all you have to do is let them know to increase it.

4. Round Up

So you have your regular payment, you have increased it because you just got a raise and now you have an uneven payment amount... consider rounding off that $657.23 payment to $660 or $675. Rounded numbers can be your best friend, you will be amazed at the difference they can make... make it fun, challenge yourself!

5. Increase Your Payments Every Anniversary Year

If you increase your payment by as little as $50 per month, you will reduce your amortization by 2-3 years depending on the mortgage balance.  Why not make your $675 payment $700 after year 1, year 2 $725 and so on.

6. Renewing at a Lower Rate?

If your mortgage is up for renewal and you are in a position where you can renew at a lower rate, consider keeping your payments the same as when you were paying the higher rate. You have proven an ability to pay the higher payment, the difference in rate will go towards paying down your principal.

7 Use Extra Money From Your Budget

Most financially sound people have a budget that they live by. If you have a little bit extra left over at the end of the month, consider applying it to your mortgage. Remember that you can apply lump sum minimum prepayments as little as $100. Take advantage of this!

8. Extra Income

If you earn commissions or happen to pick up a second income stream, consider applying the same percentage of this new or bonus income to your mortgage repayment. For example, if you are currently spending 30% of your income on your mortgage, 30% of your new income can be applied to your mortgage in form a repayment. This extra income will go straight towards principal repayment.

9. Never Take an Open Mortgage

Today’s closed mortgages typically offer 10% - 20% prepayment privileges and you’ll get a discount at 1% or more off the posted rates. Why pay higher interest unless you are going to exceed this 10% - 20% prepayment? Also, you can always make bigger lump sum payments at renewal time with no penalty!

Unless you are planning to pay off your mortgage within the term, an open mortgage is a bad idea.

10. Be Careful of Where You Get Advice

While some bankers are nice people and care about you, they work for the bank and do not have your best interest in mind. Their branch, organization and shareholders all have a financial interest in lending at higher rates, and it is in their best interest for you to keep your mortgage for a long time. This is how they make money.

Their advice will be to spend your extra money on investments and mutual funds rather than paying off your mortgage. Why? Because they make money managing these investments for you while you continue to pay interest on your mortgage.

As your independent mortgage professional, my goal is to help you get rid of your mortgage as quickly as possible! Your mortgage is simply a tool that helps you achieve homeownership. Once you have your home, it's time to get serious about getting rid of your mortgage!

If you would like to talk with me specifically about your mortgage situation, I would love to look at your mortgage and see if there are any ways you can restructure your debt so you are paying it down as efficiently as possible! Use the contact form below to get in touch.

[contact-form-7 id="826" title="Contact form"]

Topics: Finance, mortgage, Blog