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Four Tips to Pay Off Your Mortgage Faster
In Mario Kart, you race around a track in go-kart style racing. Throughout the race, you can encounter item boxes that give you advantages during the race. They benefit you, the driver, during the race and can help you complete the race at a faster pace. A player doesn’t need these power-ups to complete the race, but it gives them an advantage over other players. Homeowners can give themselves a “power-up” in paying off their mortgage faster by using a few different techniques. Here are 4 tips to pay off your mortgage faster.
Accelerated Bi-Weekly Payments and Weekly Payments
There’s a good chance you’ve heard of accelerated bi-weekly mortgage payments or weekly mortgage payments. Both help borrowers pay off a mortgage faster and save money. An accelerated bi-weekly mortgage plan is when you divide your monthly payment in half and that amount is withdrawn from their bank account every two weeks. Borrowers make 26 payments a year with an accelerated bi-weekly plan but pay slightly more than a regular bi-weekly plan. Essentially, borrowers are making an extra payment per year towards their mortgage.
Weekly mortgage payments are similar to accelerated bi-weekly mortgage payments. The mortgage is divided by four and the amount is withdrawn from their bank account once a week. By making an extra payment per year, borrowers can save thousands of dollars on their mortgage. More money goes towards the principal of their loan and they spend less on interest.
Annual Lump Sum Payments
An annual lump sum payment is comparable to making accelerated bi-weekly payments. A lump sum payment is a large sum of money that is paid in one single payment. This is typically maxed at 15-20% of the original balance that is owed. Making a lump sum payment on the mortgage and reduce the amount a borrower has to pay back. Accelerated bi-weekly payments hide the extra mortgage payment made within the bi-weekly mortgage payments, where lump sum payments are one large payment. Making a lump sum payment once a year over the life of the loan can help save thousands of dollars in interest and help pay off the mortgage faster.
Increasing your mortgage payments is a standard way to paying off a mortgage faster. Increasing the amount being paid off each month can save borrowers thousands of dollars over the life of their loan. Let’s say a borrower buys 3 coffees from a coffee shop a week with each one costing $4. If the borrower takes that $48 spent each month on coffees and puts it towards their mortgage payment each month, that’s an added $576 a year! Those coffees add up and that is money that can save you thousands over the life of your loan in interest. Moreover, if a borrower gets a sizeable income tax return or an annual bonus from work, they can put that money towards their next monthly payment to help pay down their mortgage faster.
A micro increase on a borrower’s mortgage is a unique way of saving money and paying off a mortgage faster. Imagine a borrower gets a pay raise from work. They can do an increase on their mortgage payments to match their salary increase. The smallest amount of a raise and increase in monthly payments can make a considerable difference in savings. On a $200,000 25-year mortgage with a rate of 3% would see a savings of over $12,000 with an increase of just $100 on their monthly mortgage payment.
Borrowers that are looking to pay off their debt faster and save money on interest will know that mortgage debt is the cheapest debt to pay off. Paying off debts like credit card debt and student loans first will help borrowers save money and then they can work on paying off their mortgage debt. If you’re interested in different options to pay off your mortgage faster, get in touch with us here!