Married to Your Mortgage?






Every homeowner has mortgage payments on the brain. Whether it’s a 15- or 30-year term, standard, fully amortizing mortgages are designed so that homeowners pay off the balance over the life of the loan. This means that homeowners with a 15-year term will make 180 payments – double that to 360 for a 30-year term.

Homeownership, like marriage, is not a commitment to be taken lightly.

“Buying a home is one of the most important purchases a consumer will make in their lifetime,” says John Schleck, Centralized Sales & Online Exec, Bank of America, noting that when planning a financial future, it’s important to look at the big picture in order to achieve goals.

Homeowners may not be in it for life (like marriages ought to be), but they are in it for the long haul. If you want to pay off your mortgage as soon as possible, consider adopting one of these strategies.

Pay off other debts first. It sounds counterproductive, but it’s important to be in good standing financially before attempting to pre-pay a mortgage.

“I always recommend that credit cards, which normally have high interest rates, be paid first,” says Joe Petrowsky, owner of Right Trac Financial Group. “Pay off the smallest account, then continue with the next lowest balance, so that they’re paid at an accelerated rate. Credit cards first, installment debts next.”

This method makes the most sense in terms of financial health. The sooner smaller debts are paid off, the sooner you’ll be able to allot more of your income to pre-paying a mortgage.

Break up your monthly payments. Another strategy to pay off your mortgage sooner involves paying multiple times per month. Many lenders offer loan repayment programs in biweekly or bimonthly installments. Over the course of a loan, biweekly plans typically save more, because you end up paying an extra month each year – paying half of your monthly payment every other week (for 26 weeks a year) adds up to 13 full payments, rather than 12. Biweekly payments are credited monthly, so there aren’t any interest savings, but it does shorten the life of a loan considerably.

Borrowers on a bimonthly plan pay the same amount they would on a biweekly plan, but the payments must be made on the 1st and 15th of each month. This equates to 24 bimonthly periods in a year; compare that to the 26 biweekly payments you’d be making in the previous scenario, and it’s clear that a bimonthly payment plan has little effect on how soon your mortgage is paid off.

Increase your monthly payments. “The simplest way to pre-pay a mortgage is to pay as much additional money to the regular mortgage payment,” Petrowsky says. “Most folks add a specific amount, but others pay the amount of extra money they have available each month.”

There are a variety of ways you can increase your payments, depending on your goals and budget. Talk with your lender to ensure these payments are applied to the principal, not the interest.

The round-up method – Rounding up your monthly payments to the nearest hundred could significantly shave months off your loan. Most homeowners round up when they’re budgeting anyway, so it’s unlikely you’ll miss those few extra dollars.

The 1/12 method – Interestingly enough, you can achieve the same result of biweekly payments (without the biweekly burden) by adding a 12th of your monthly payment to each month. For simplicity’s sake, if your monthly payment is usually $840, adding a 1/12 of that every month ($70) will add up to one more month paid off each year.

The $1 dollar method – For a virtually painless strategy, add one more dollar to each monthly payment. You may be thinking this won’t amount to much, but staying consistent with this method actually does pay your mortgage off sooner.

It’s important to note that the success of these strategies depend entirely on your specific loan. Be sure to speak with your mortgage lender to find out which method will work best for you.

Article by: Suzanne De Vita, RISMedia

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