 |
| Pay Off Your Mortgage Debt Fast |
Worried with your mortgage debt? Wondering how to pay off such a big amount balanced with your living standards? Well, here are 8 simple ways of making a way through this hazard.Some are better off using the money elsewhere, but extra payments and refinancing can do a number on your mortgage. In fact, about 34 percent of homeowners in the U.S. no longer have a mortgage, according to U.S. Census data.
The recent foreclosure crisis did serve as an
incentive for homeowners to pay off their loans sooner rather than later – and
some have actually given it a try.
One of our clients paid his $90,000 home mortgage in
less than three years. In order to finish off the mortgage, he repeated the same
tactics he had used to vanquish his credit card, student loan and auto loan
debt. What was the secret ? ''It was too simple and easy'', he said, ''rather than cutting down I didn’t
increase my expenses, plus I was careful not to borrow any more money''.
While living
mortgage-free may sound like an enviable goal, paying off your mortgage early
isn’t always the best use of your money, says Todd Tresidder, a financial coach
and author who publishes the website FinancialMentor.com. He was asked about
the merits of paying off a mortgage early so many times by his readers and
clients that he wrote up an exhaustive 5,200-word article, with charts,
covering all the considerations.
“The intuitive
response is to get out of debt. We all want the security of owning our castle
free and clear with one less expense to deal with. The prospect of making
monthly payments for the next 30 years is antithetical to freedom,” Tresidder
wrote. “However, there are times when intuition and finance disagree. The
correct answer is not cookie-cutter but must be custom fitted to your personal
financial situation.”
If you have
high-interest credit card or student loan debt, you’re much better off paying
those off before making extra mortgage payments. Saving for your child’s
college education and funding your 401(k) at least to the point of getting the
maximum employer match – and maybe more – may also be more important than
getting ahead on your mortgage.
Beyond that, you want
to make sure you have enough cash on hand for emergencies because drawing from
your home equity isn’t always easy. If your mortgage is underwater, or if you
anticipate losing your house to foreclosure or short sale, making extra
mortgage payments is just throwing money away.
The harder calculation
is whether you’re better off investing your money or applying it toward your
mortgage. When the market is strong (for whatever investment you’re making),
you will likely earn much more on your investments than you are paying in
interest on your mortgage. But if your investments lose money, you would have
been better off applying that cash to your mortgage.
 |
| Worried With Your Mortgage? |
Many people aim to pay
off their mortgages before they retire, but even that may not be the best move
in all circumstances.
Having a mortgage does
provide a tax break, but it’s not as good a benefit as many people think.
According to an analysis of 2012 tax data by The Pew Charitable Trusts, just
under 24 percent of tax filers claim the deduction. Many homeowners, even those
who itemize, often find they do better on their taxes with the standard
deduction.
For those homeowners
who are fully funding their retirement accounts, are free of high-interest debt
and have enough cash socked away for other life goals, here are eight simple
ways to pay off your mortgage early.
Add something to every
month’s payment. The advantage to
extra payments is that all that money goes toward principal. Early in a
mortgage, most of your regular payment goes toward interest. According to
calculations by Bankrate.com, if you added an extra $100 to your payment of a
new $100,000 30-year mortgage at 4.5 percent interest, you’d pay off the
mortgage eight and a half years early and save more than $26,300 in interest.
Make a payment every
two weeks. There are
companies that volunteer to set this up for you, for a fee, but you can do it
yourself for nothing. You’re effectively making a full extra payment each year.
Paying half your mortgage payment every two weeks, on that same $100,000,
30-year mortgage at 4.5 percent, would cut just under 5.5 years off the term
and save roughly $14,000, according to a calculator at The Mortgage Professor
site run by Jack Guttentag. Splitting your mortgage payment into two pieces
produces minimal savings.
Make extra payments
whenever you can. Beck and her
husband started by paying $35 extra per month, but then began making additional
payments, at one point so eager to pay off the loan that they made eight
payments in a month.
Make one extra payment
a year. This provides about
the same savings as making half a payment every two weeks. When you make the
payment isn’t important. You could make it at the end of the year or wait until
you get a tax refund or a bonus.
Refinance your
mortgage to a lower rate, and keep making the higher payment. The amount this will save depends on the exact
figures, but it should shave years off your mortgage and save you thousands in
interest.
Refinance your
mortgage to a shorter term. This
cuts the amount of interest you pay significantly as well as getting you out of
debt sooner.
Contribute funds from
another source. Designate money
from a bonus, odd jobs or freelance work toward paying of the mortgage. If your
income is variable, rather than making regular additional payments toward
principal, make one big payment when you can.
Cut expenses and put
the savings toward your mortgage. Change to a cheaper cellphone plan, cut the cable cord or
otherwise cut living expenses and devote that extra money to extra mortgage
payments. Living a frugal lifestyle may be difficult in the moment, but it’s
worth the struggle if your ultimate goal is to be debt-free.
The most important challenge is not to panic and not to linger. Plan your expenses and savings ahead and live a peaceful life life in your own risk-free home.
