Having a long-term mortgage may feel like you’ll never be free from the shackles of debt. When you may want to finish other projects or, better still, purchase another home, your mortgage payments can be stressful. Fortunately, there are easy ways to complete paying your mortgage faster and to buy a new house.
Refinance Your Mortgage
Typical mortgage loans are 30 years, but you can also get a plan with short payment terms. However, shorter loan repayments mean that you will have to pay to make more monthly payments. For example, a 20-year home loan has a lower interest than a 30-year plan.
Suppose you’re supposed to pay $250,000 for a 30-year mortgage at an interest of 3.75%. The total amount you should pay that month is $1,150. Refinancing your loan to a 20-year plan means that the interest rate will reduce, thus increasing the total monthly payment.
Refinancing your mortgage to shorter payment terms means that you’ll save more and probably use your savings to purchase a new house. Once the interest rates reduce, you can comfortably clear your loan faster.
Make More Frequent Monthly Payments
You don’t have to make one payment monthly to finish your mortgage repayment. You can increase the payment frequency to weekly or bi-weekly. Suppose you pay $2,000 per month; you can decide to pay $850 per week. If you have a tax refund, you can also decide to use it to clear your mortgage loan.
Finishing your mortgage repayment early helps you save money you’d have spent on payment for your upcoming house purchase. However, it’s essential to inform your lender that you’d want to make extra payments monthly. This will prevent your lender from applying the payments to other scheduled monthly payments, which may not save you anything.
Much of your monthly payments go to interest rates for the first few years. So, you can take advantage of the situation by prepaying when the interest is high. Soon, you will realize that you don’t need much to clear your loan.
Sometimes you may land on a high-paying deal. Instead of using the whole amount on other projects, you can decide to send it straight to your home loan company. Direct any unexpected income to your mortgage repayment regardless of how small it is. Some of the unexpected incomes include credit card rewards, holiday bonuses, and tax refunds.
Pay an Extra Principal Amount Monthly
If you have extra money after clearing other expenses, you can decide to use it toward your mortgage loan principal payment. Paying extra money toward the principal amount reduces the amount you owe and the interest amount you would have paid over the mortgage duration.
For example, you can divide your monthly payment by 12 and make it a separate payment for the principal amount. Remember to notify your lender that the additional amount applies to the principal only.
With this guide, you will realize that paying your mortgage early to achieve your dreams of buying another house isn’t as difficult as you might have previously thought. Ensure that you spend your income wisely, and save more money for your next house purchase.