A question of the mind of every homeowner is how can I pay off my mortgage debt faster? Experts agree that making extra mortgage payments to help pay off your balance sooner is a great idea assuming you’ve already paid off (or paid extra on) higher interest rate debts such as credit cards and car loans.
The real estate tip most people forget is that the easiest way to save a substantial amount on your mortgage is to choose a 15-year fixed-rate mortgage to begin with. If you compare a 15-year mortgage on $300,000 at 6% interest to a 30-year mortgage of the same amount, the 15-year mortgage would save you just over $190,000 in the long run. Keep in mind the monthly payment on the 15-year mortgage would run about $730 more per month. If you can swing the higher monthly mortgage payment then by all means securing a 15-year mortgage is the way to go.
If your financial situation doesn’t allow you the ability to commit to the higher monthly payment, go with the 30-year mortgage but have a plan in place to make extra payments that you can afford. Using the example above, if you make biweekly payments on the 30-year mortgage you’d save just over $70,000 in interest payments over the life of the loan. A biweekly payment simply means you split the typical monthly payment amount down the middle and pay half every two weeks. In essence, you’re not paying any more, your just paying it on different days of the month. This is a very effective way to pay off your mortgage debt faster.
A lot of banks offer their customers the option of setting up automatic biweekly payments. Contact your bank to see if you can sign up and ask if there are fees involved. There is typically a one-time set-up fee plus a small transfer amount that is applied to every payment transaction. Another payment option that can achieve similar results is to add 10% on to your one-time monthly payment and note that it should be applied to the principal balance.
Paying off debt, whether it be mortgage debt, credit cards, student loans or car loans, just takes a good financial plan and discipline. Here is another real estate tip: if you live in a two income household, try cutting out unnecessary expenses and living on one income. Apply the second income to debt and watch your debt shrink fast. For extra motivation do a quick calculation of how much money you’re spending in interest. You’ll most likely be shocked at the amount of extra money you’re spending. Don’t throw your hard earned money away on interest. Make extra payments and reduce your debt fast.
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