A mortgage is one of the largest expenses a consumer will ever take on in their lives. That monthly payment eats a very large part of most people’s monthly budget. Imagine the options that would open up to you if that payment disappeared. You can use strategies to accelerate your mortgage payments for paying off your mortgage early. Most financially successful people have figured this out and do everything they can to destroy this expense. This is non-deductible debt, the type of debt we all need to reduce and eliminate if we want long-term financial success.
Below is a list of mortgage reduction strategies tips you can use to help remove that mortgage at a reasonable pace.
1). Never get an open mortgage at a fixed rate unless you plan on paying it off within its term.
Today’s closed mortgages generally offer 10-20% prepayment privileges, and can be obtained at a much lower rate. Open mortgages at fixed rates carry higher interest. Why pay higher interest unless you are going to exceed this 10-20% prepayment? You can always make bigger lump sum payments at renewal time with no penalty.
2). Use accelerated weekly, or bi-weekly payments.
Accelerated weekly payments are equivalent to ¼ of your monthly payment. Accelerated bi-weekly payments are equivalent to ½ your monthly payment. Both of these methods enable you to make one extra monthly payment a year – the effect of this alone reduces your amortization from 25 to less than 21 years.
3). Give your mortgage the same raise as you get each year.
If your income goes up 10%, so should your mortgage payment. This extra increase in payment will go directly towards principal repayment.
4). Give your mortgage a portion of any bonus or extra income.
If you spend 30% of your income on your mortgage, then 30% of any extra income should also go to your mortgage in the form of a prepayment. This bonus portion will go straight towards principal repayment.
5). Keep your payments the same even if you renew or refinance at a lower rate.
Since you know you can afford to pay at this level, don’t decrease your payment when you negotiate a lower rate. The difference in payments between your new rate and the old rate will go directly to the principal.
6). Use your income tax return to put a lump sum payment towards your mortgage.
This is extra money that is not used in your monthly budget. Don’t indulge – make it really benefit you and use it to build your wealth.
7). Use extra money from your budget.
Most financially successful people have a budget that they live by, if you have a little bit extra then apply it to your mortgage. Minimum prepayments can be as little as $100 and add up quickly.
8). Never use a home owner line of credit for long term borrowing.
Home owner lines of credit were designed for short term borrowing and cost more than variable rate mortgages. If you are going to keep a large balance outstanding for long time then convert it to a fixed rate or below prime variable rate mortgage.
9). Consider a variable rate mortgage or short term fixed when market conditions justify it.
While the fluctuation will keep some people awake at night, those who can endure the rate adjustments can save money over time. Some variable mortgages are considerably below prime and one year fixed rates are typically the lowest fixed cost.
10). Seek independent financial & mortgage advice.
While many bankers do look out for your best interest, never forget that they work for the bank and not you. Their branch, organization, and shareholders all have a financial interest in lending at higher rates hopefully having you keep your mortgage for a long time. Talk to your financial planner, a competent mortgage advisor, or talk to a financially savvy friend.
In closing, the mortgage reduction strategies that I have listed above will take discipline and dedication. The one thing that most financially successful people have in common is discipline and part of that discipline is paying off debts quickly. Following these simple steps will put you well on your way.
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