Just the Peaks
This newsletter, at a glance
A home mortgage is the best kind of debt
Even better? Here are seven pointers for early payoff
For most people today, realizing the American Dream takes a back seat to other kinds of expenses. From personal credit cards and outstanding medical bills to auto loans and payday advances, the stakes are high in this fast-paced game of finance.
But ask the average consumer about their favorite loan, and they’re bound to tell you about their home mortgage. It’s the single most rewarding piece of debt you’re likely to take on. It’s also an integral part of establishing your family’s financial footprint.
Purchasing a home is not only a smart, sound investment in most cases. It’s also a necessary debt for the majority of Americans. You need a place to live, and since we work to live, paying off your mortgage early is always an excellent idea.
How to take out your loan (literally)
Many homebuyers settle for terms that have them paying decades and decades into retirement. But what if we told you there are ways to pay off your mortgage in half the time? That’s fewer payments, less interest, more money saved. And you won’t have to drastically alter your quality of life in the process.
With inspiration from the fine folks at Due, here are seven savvy tips for paying off your mortgage ahead of schedule:
1. Buy within your means
In the year 2017, over 38 million families struggled to afford housing. That is, over 30% of their income went toward a mortgage bill, rental costs, etc. To pay off your debt early, ask the question: How much home can I afford?
Even if the bank prequalifies you for a substantial loan, that number is not always realistic. Maxing out your monthly earnings on a massive mortgage may not suit your lifestyle, so speak with a trusted mortgage pro who can help you maximize your budget responsibly.
2. Get your bucks in a row
Before enacting a payoff game plan, you need to understand what you’re working with. Experts say to do the math early. For instance, if you want to relieve your debt within ten years, calculate how much you will need to contribute each month based on your current amount owed, interest rate, and number of remaining payments.
This number is fairly simple to crunch, and there are plenty of payoff calculators available online to help. With this monthly tribute in mind, move on to the next tip.
3. Eliminate the worst of the worst
Even though your mortgage expense is high, the interest rate is probably relatively low. If you have balances on credit cards or personal loans, and the interest rates are in excess of your current mortgage’s, tackle them first. Avoiding those high interest payments will save you money in the short and long runs, which can be put toward your home.
4. Overpay when you can
When sending in your check, double down as much as possible. Experts say that if you make just one extra payment per quarter, you can shave off over a decade of total repayment time. If that’s not possible, try rounding up to the nearest ten or hundred.
While every little bit counts, be careful. Always consult with your lender to ensure there are no penalties for paying early, and that the extra cash is actually going toward the principal—not next month’s payment.
5. Go the biweekly route
For some people, there’s a kind of psychological comfort in making small (but frequent) payments rather than large monthly or quarterly ones. So, why not use the same method for paying off your mortgage?
Instead of the standard monthly payment, a ‘biweekly mortgage’ has you sending in half of your usual payment every two weeks. Over the course of a year this amounts to an extra monthly payment. Stick to this routine, and a 30-year loan will be paid 5 years early.
6. Sacrifice your second income
Living frugally is one way to save money in general. But when we’re talking about thousands of dollars in regular payments, cutting back here and there isn’t always smartest. If your family has two earners, you have the opportunity to take a huge chunk out of your mortgage.
Some thrifty couples have found that dedicating one income to the mortgage has allowed them to pay off the principal quicker than if they pooled their resources.
7. Use your tax refund
If you don’t have the discipline to chip away at your mortgage throughout the year, take advantage of the few times you have money in your pocket. One of those times is during tax season. Nearly 75% of people receive a refund, and even though amounts are purportedly down in 2019, the average check is still $2,640.
Uncle Sam not on your side? Consider paying down debt during other big-money moments. You may receive monetary gifts or a work bonus at the holidays.
Everest says: Smart about debt, smart about life