Every dollar you add to your regular payment each month dramatically reduces your principal balance and you don’t have to double it to make a difference. Adding just one additional payment each year will take years out of your mortgage!
Here are some other options for paying more on your mortgage, and how these additional payments affect a $220,000, 30-year mortgage with a 4% interest rate:
1. Make an additional quarterly payment for the house
You will pay off your mortgage 11 years earlier and save more than $65,000 in interest.
2. Bring your lunch to work
If you bring a brown bag to work every day, you won’t win a fashion contest. However, if you trade lunch for groceries, you can become a thin, mortgage-free machine three years earlier than expected. Applying your mortgage of $100 a month on your lunch mortgage also saves you over $28,000 in interest.
Other small victims can make a big contribution to the prepayment of your mortgage. Let Andrew Jackson work for you by adding only $20 to your mortgage payment each month. Based on our sample mortgage numbers above, pay off your mortgage a year earlier and save over $7,000.
How much could you save if you took your money from Starbucks and added it to your mortgage payment each month? According to the Acorns Money Matters report, the average American spends $3 a day on coffee. It’s about $90 a month added to your mortgage payments, which saves you $25,000 in interest and four years of the loan!
3. Refinance or pretend you did
The only type of debt Dave doesn’t shout at you is a 15-year fixed-rate mortgage with a payment that cannot exceed 25% of his net salary. You pay much more interest on a 30-year mortgage, and who wants to borrow for 30 years?
You can refinance a longer-term mortgage on a 15-year loan. If you already have a low-interest rate, you save the cost of refinancing and pay off your 30-year mortgage like a 15-year mortgage. The same goes for a 15-year mortgage. If you can change it, why not increase your payments to pay for it in 10 years?
4. Reduce the size
Reducing the size of your home could be a radical step. However, if you are determined to get rid of your mortgage, consider selling your larger home and using the proceeds to buy a smaller, cheaper home.
You may be able to use the proceeds from the sale of your larger home to pay cash for your new home. But even if you have to take out a small mortgage, you have managed to reduce your debt. Now his goal is to get rid of this debt as soon as possible. The smaller the balance, the faster you can do it.
We all know that 20/20 is in retrospect, but if you use the tips below before buying your next home, you’re in an excellent position to pay off that mortgage sooner.
5. Don’t bite more than you can chew
Before looking for houses or finding a real estate agent, you need to make sure that you are ready financially and that you can afford the house you want to buy. However, this handy checklist can be a good place to start. If you cannot answer yes to the six questions, you must suspend the purchase of your home.
- Will I be debt-free if I spend three to six months in an emergency fund?
- Can I make a deposit of at least 10% (preferably 20%)?
- Do I have enough money to cover closing and relocation costs?
- Is the house payment 25% or less of my monthly takeout payment?
- Can I Afford a 15-Year Fixed-Rate Loan?
- Can I pay for the ongoing maintenance and supply of this home?
If you need help determining the amount of your home, our free mortgage calculator is a great place to learn more and see what your maximum payment should be.
6. Contact a professional to find the right home
If you are looking to buy a home that fits your budget, or are ready to sell your home, contact an experienced real estate agent whose advice will save you time and money.
A buyer can help you navigate the home buying process. In some cases, they can even help you find housing before it goes on the market and give you a competitive advantage. And when it comes to offers, your agent will negotiate on your behalf so you don’t pay a cent more than you need to.
Dave’s network of local licensed providers allows you to find a trusted real estate professional in your area. Our ELPs know how important it is for you to buy a home you can afford. You can, therefore, be sure that your ELP will not put you under pressure to consider houses that would ruin your budget. Contact your agent today!