If you are having trouble paying off your mortgage, don’t take it personally. Millions of people are struggling still in the post-recession economy, and a mortgage is one of the best ways to stay afloat while still meeting financial goals. But no one wants to stay in debt forever. It’s bad for your credit score, your bottom line, and even your health. Fortunately, there are tools and techniques out there that will help you get your mortgage payments under control and even pay them off years early.
The payment and interest reducing techniques can be done by almost anyone and tools like a mortgage payout calculator are available for free on the internet. Everyone living on a mortgage has these available to them and should do what they can to pay it off as soon as they can so they can stop wasting money on interest. Let’s take a look at some of the things you can do before and after you take out a mortgage to help you pay it off early.
Before Taking out a Mortgage
While you are deciding what mortgage to take out and what terms you should agree to, you are making decisions that could affect the next few decades of your life. Making the right choices before even getting started can mean the differences of tens of thousands of dollars in interest and years of paying. There’s no such thing as too much research here. Here are some things to consider.
Fixed-Rate Mortgage Vs. Variable Rate and Adjusted Rate
Deciding what kind of mortgage you want is just as important as anything else. There are three main kinds of mortgages: Fixed rate, adjustable rate, and variable rate. Each has their pros and cons and are appropriate for different borrowers in different situations.
Fixed-rate mortgages are self-explanatory. The interest rate for the mortgage is locked in when the contract is signed. It is agreed upon between the borrower and lender, and will not change over time. This kind of mortgage is generally favorable for long-term loans. Interest rates usually trend higher over time, but not without variation in the interim. Interest rates around the nation may drop below your rate while you are paying it off, but eventually, they will likely rise and stay above yours.
Variable rate mortgages are the opposite. The interest rates fluctuate depending on the market. This can be great for you if interest rates around the nation drop but can end up costing you more if they rise and your mortgage rises to meet them. Choosing this option is basically gambling that interest rates will go down, which is very possible over the short term (less than 20 years).
Adjustable rate mortgages are a combination of fixed and variable. The interest rate is locked in at the beginning but will unlock later down the road. These loans are a way for lenders to hedge their bets, allowing for variable rates but still getting a few years of fixed rates in case the interest rates drop. Because this helps them out, they usually have slightly more favorable rates or conditions to the borrower.
Research the market as much as you can to find out the likely trend for interest rates in the near future before making your decision. Once your mortgage is locked in, there is little you can do to change it without further time and cost.
Using a Calculator
A mortgage payout calculator is a tool that you can use to see what kind of payments you will be making, and what kind of payments you will have to make to reach specific goals. You simply type in your borrowed amount, payment amount, interest rates and any other pertinent information and the calculator fills in the blanks.
Want to know how long it will take you to pay off the mortgage while paying a certain amount every month? Run the numbers. Want to be done in a certain number of years? Check the calculator to find out the money required for that. It’s a great tool to see just what you are in for before taking out a mortgage.
These tools are widely available online. You can even get a mortgage payout calculator app for your smartphone. They are great for planning your mortgage but also managing it once you have signed on the dotted line.
Going Big on the Down Payment
The point of a mortgage is to get money that you don’t have, but getting together a large sum of money beforehand will be very helpful to you. Most mortgages require or allow a down payment of some kind, like a car, and the more you pay up front, the lower your payments will be. Not only that, but your interest will be lower over time as well. Ideally, you want to be paying back as little as possible.
10 percent is the absolute minimum you should shoot for, but 20 percent is even better. That way, you can avoid paying private mortgage insurance (PMI). This is a fee that the bank requires you to pay to protect their investment if the loan-to-value (LTV) ratio of the mortgage is over 80%. The higher the LTV (and smaller the down payment), the higher the risk for the lender who will then charge for PMI.
You shouldn’t have to pay this fee if you don’t have to, so you may even want to consider borrowing a little to pay a higher down payment. Assuming, of course, that the interest rate on that loan is lower than the fees and extra interest you would pay.
While You Are Paying Your Mortgage Off
Just because you have already locked yourself into a mortgage, that doesn’t mean that you can’t pay it off early. Here are a few things you can do to get free faster.
Most mortgages are paid for with monthly payments, just like any other bill. That way, you can take a little off your paycheck each month without getting hit with big lump sums. But increasing the rate of payment can have great benefits for you.
Instead of every month, arrange to make your payments every two weeks. With bi-weekly payments, you will pay a little extra off of the mortgage every year than you would while making monthly payments. You’ll hardly notice these extra payments because they are so small and frequent. You can shave tens of thousands of dollars and years off of your mortgage with this technique with little to no change in your spending habits.
Put More Towards the Mortgage at Every Opportunity
Simply paying off more of the mortgage is the surest way to pay it off early, but of course, it isn’t that easy. You’ve got other bills to pay and a life to live so you can’t just funnel all funds toward it every month. However, there are many opportunities to pay more towards your mortgage which are low-impact that you might not even have noticed, and every dollar counts. A lower principle means lower interest, which leads to less time paying.
Consider rounding up your mortgage payments to get a few extra bucks in there. Or, make an extra payment every quarter or six months. If you plan for it, it will be easier to find the money. Also, whenever you come into a windfall of cash, like a bonus or raise, immediately set aside some of it for your mortgage. Sacrifices now will lead to much more cash on hand later.
Refinance your Mortgage
Refinancing your mortgage can help you get a better interest rate or rearrange your payment plan. This will likely mean paying more every month (or every two weeks), but this bit of bravery can save you a lot down the line. Some lenders lock in your payment plan and interest, but if you are in a better position financially now than when you were when you signed the mortgage, you should get the opportunity to pay more and get out of debt faster.
If you are in dire straits, you may even qualify for federal assistance which will reduce your interest rate even if you have little or no equity in your home. Don’t forget to make use of a mortgage payout calculator and make sure you are getting a better deal.
If you are in big financial trouble and nothing you can do will get your interest under control, you may need to take the drastic step of downsizing your home. If you sell your larger home, you can use the profits to purchase a smaller one.
Anything left over can go into the mortgage to help pay it down. This can be a lot of work, but it can drastically cut down the time you will spend paying off that first mortgage. Even if you have to resort to taking out a smaller mortgage, your debt will be reduced.