Should you pay off your mortgage early?
It's a question personal finance experts have been debating for years. Some say it makes financial sense to invest that money in the stock market, while others say you won't ever regret being 100% debt free.
Here are the 6 steps to follow to help pay off your mortgage faster:
Step 1: BUY A HOME YOU CAN AFFORD
If you want to finance a home, you’ll need to get prequalified first. The bank will look at your overall financial picture and spit out an amount that you're likely to get a loan for. Some people use this number to set a housing budget. The bank is just guessing. You can examin your monthly budget and determined what you want to spend on housing. It can sometimes end up being much less than what the bank tells you what you could afford.
Step 2: GET A 15-YEAR MORTGAGE
When you calculate the difference between a 15-year mortgage and a 30-year one, of course, a 15-year mortgage will always cost you more per month. The advantage is that you'll save on interest charges because the term is shorter and the interest rate is lower. In most cases, the interest rate for the 15-year loan can be about 0.75% lower than the 30-year mortgage.
Step 3: SET A TARGET PAYOFF DATE
After moving into your new home, you can use an online mortgage payoff calculator to set a payoff goal that would be both challenging and attainable. Post reminders of your goal around the home and let your close family and friends know about it so they can help hold you accountable.
Step 4: START AUTOMATIC BIWEEKLY PAYMENTS
In order to speed up your mortgage payoff, you can start automatic biweekly payments through your loan provider. You pay half of the monthly mortgage payment every 2 weeks. That's basically the same as 13 monthly payments a year. Some banks get the ball rolling on this for free, but some loan providers charge a fee. Give yours a call to talk over your options. (If you are being charged a fee, you can easily set up your own accelerated mortgage plan at no cost.)
Step 5: REDUCE EXPENSES AND INCREASE EARNINGS
Review your budget from top to bottom to find ways to reduce expenses and increase your earnings. This is how you learn to sweat the small stuff because all of those credit and debit card purchases really add up!
Here are a few ways to save:
Cut cable service – Approximate savings - $600/year
Switched car insurance providers – Approximate savings - $480/year
Pack your lunch – Approximate savings - $1,000/year
Make coffee at home - Approximate savings - $500/year
Stop buying new clothes – Approximate savings - $1,200/year
You can also volunteered for extra shifts at the office, wait tables part-time, and pick up pet sitting gigs on Craigslist to make more money. Use all of your extra income, including tax refunds and work bonuses, to prepay the mortgage.
Step 6: REWARD YOUR SUCCESS
Never feel deprived throughout the mortgage payoff process by rewarding yourself along the way. For every $5,000 you knock off your mortgage, you can allow yourself $100 to spend on whatever you want. Sometimes you'll find you won't even use that money because you will be so focused on reaching your goal. When you send your final mortgage payment to the bank, you can book a vacation to celebrate your freedom from debt.
Whether you plan to pay off your mortgage early or not, some of these steps can be applied to other types of debt. It all boils down to hard work. It requires discipline, organization and most importantly, the right attitude.