10 Tips on Paying Your Mortgage Off Sooner
Pay off your mortgage faster with these tips.
Make 10 Percent Your Down Payment Minimum
One of Dave Ramsey’s top tips for buying a new home is to put down at least 10 percent on your new home. He says 20 percent is even better, as it will help you to avoid private mortgage insurance (PMI). “That’s an extra cost added to your monthly mortgage payment, and it doesn’t go toward paying off your mortgage balance.”
Get a 15-Year, Fixed-Rate Mortgage
Dave Ramsey advises getting a 15-year, fixed-rate mortgage to save you big money in interest down the road. He suggests steering clear of a 30-year or variable rate mortgage. “When you have a 15-year mortgage from the beginning, you won’t be tempted to use that money for something else. You’ve got built-in accountability to get your house paid off fast!” Ramsey says.
A Monthly Mortgage Payment Should Be 25 Percent of Total Take-Home Pay
Ramsey urges the importance of knowing how much you can afford so you don’t wind up in financial trouble. To figure this out, first add up any income you bring in each month. “Let’s say you bring home $2,400 a month and your spouse makes $2,600 a month. Your total monthly take-home pay would be $5,000,” he says.
Next, multiply your monthly take-home pay by 25 percent. This will give you your maximum mortgage payment.
“If you earn $5,000 a month, that means your monthly house payment should be no more than $1,250.”
“You could afford these options on a 15-year fixed-rate mortgage:
- $187,767 home with a 10% down payment ($18,777)
- $211,238 home with a 20% down payment ($42,248)
- $241,415 home with a 30% down payment ($72,424)
- $281,650 home with a 40% down payment ($112,660).”
If You Have PMI, Get Rid of It As Quick As Possible
Private Mortgage Insurance or PMI is requirement for borrowers who make a down payment of less than 20 percent and provides some security for lenders against potential defaults on the loan. PMI typically costs between .5 percent and 1 percent of the entire loan, which could mean an extra $1,000 or so a year that doesn’t go toward paying the principal of your loan.
Make Extra Payments
Be sure to check with your mortgage company before making extra payments first because some companies only allow extra payments at certain times. But if you can make extra payments it’s a good idea because you will pay down on the principal quicker and you buy yourself some extra time in the house should life events change. You can make a note with the payment that you want it applied to the principal rather than the next month though. These creative ways will help you stash away some cash.
Try Bi-Weekly Payments
Dave Ramsey says that by paying your mortgage bi-weekly, you could potentially knock off eight years from a 30-year mortgage, depending on the interest rate. You’ll need to check with your lender to see if you can arrange bi-weekly payments. Find out how one man saved $150,000 by adopting minimalist ideas.
Pay Your Mortgage Like It’s a 15-year Mortgage
Much like making extra payment, pretending your 30-year mortgage is actually a 15-year mortgage will help you pay off your mortgage significantly faster, plus save you thousands on interest. It takes discipline and proper budgeting but it can be done.
If your empty nesters or have grown tired of paying your mortgage, you should consider downsizing. The money you’ll gain from the sale of the home could potentially be put toward your mortgage on the new home and make it easier for you to pay off the balance quicker.
Recast Your Loan
Recasting your loan can be a helpful tool in paying off your mortgage sooner. If you come upon a lump sum of money you can put it toward the principal of the loan and have the loan reamortized. Lenders have different requirements on how much you can put toward the principal so be sure to check with your lender.
Round Up Your Payment
An easy way to help pay your mortgage faster is to round up on the amount you send to the lender. Your mortgage will likely have some decimals involved or might end in a number that you can round up. All of those additional dollars can help pay down the principal and will add up over time.
Try any of these 35 brilliant ways to save money around you home so you won’t feel the impact of rounding up that much.