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7 Strategies To Repay Your Mortgage Quickly

If you have a mortgage that needs to be paid off in 30 years, it may seem like it will take forever to repay. But there are efficient ways to reduce the time it takes to pay off the mortgage on your house. Most of the strategies do not require you to spend extra money.

Nevertheless, repaying a mortgage does require adjusting your other financial needs.

“I wouldn’t want to recommend to someone to pay off their house and not have an emergency fund,” says Dave Totah, a certified financial planner working with Exencial Wealth Advisors in Frisco, Texas.

Along with putting aside money in your emergency fund and for your retirement, follow these seven steps for quick repayment of your mortgage.

Here are a few tactics you can use to ensure that you don’t lag behind in your mortgage payments.

1. Make payments twice a week:

Instead of making monthly mortgage payments, divide the amount and pay it twice a week or once in two weeks.

Jonathan Scott, professor of finance at Temple University’s Fox School Business, says that following this method will help you pay off the mortgage quickly.

This is because, at the end of the year, you would have made payments equal to 13 monthly payments.

Following this method can knock off four to six years on a 30-year loan. On a mortgage of 15 years, you can reduce one to three years by making biweekly pavements depending on the interest rate on your loan.

Some companies have biweekly plans that clients can opt for at a cost. For example, AutoPayPlus will manage a biweekly plan at the cost of $399, in addition to a $2.45 verification fee and a $2.45 convenience fee debits twice a week. But there are other mortgage lenders like Wells Fargo, who set up biweekly payments for customers free of cost.

You can send a biweekly payment even though you aren’t part of a specific plan. Your mortgage company will keep the first payment till the second arrives. Companies like Wells Fargo will do the same in most cases. Enquire with your company and find out the terms under which a biweekly plan is accepted.

2. Save for an additional payment every year:

If biweekly payments are too complicated for you, you can make equivalent savings by making an extra payment every year. You can use your tax refund or your bonus to make such a payment.

Set aside the entire amount to make the payment towards the principle of the loan.

Craig Lombardi, president online division for Guaranteed Rate, Mortgage Company, says that making an additional payment every year can reduce your repayment period by as much as seven years.

3. Pay extra money towards the principal each month:

If you are unable to make an additional annual payment, you can send an additional amount every month. Few people may round off the amount to the nearest hundred dollars or add another $100 to the amount every month. Totah says this is a simple and painless way to reduce the mortgage.

Enquire with your lender on their method of handling payments that are more than the stipulated monthly bill. To reduce the mortgage term and interest, the additional money will need to be adjusted against the principal. The savings will make will depend on the terms of your loan and how much extra you send each month.

4. Get monthly repayments recalculated:

If you suddenly come into money, consider recasting your mortgage. Some mortgage companies offer this option where they will accept a lump sum for payment towards the principal.  

Lombardi says that for about $250 fees, companies will reamortize the loan where the terms remain the same, but monthly payments are reduced based on the reduction in principal.

Mat Ishbia, president and CEO of United Wholesale Mortgage says that they do this for their clients often. But every lender will have different rules regarding how often a loan can be recast and the minimum amount to be paid towards the principal. Ishia says his company requires that a minimum of $10,000 be paid as a lump sum, but many firms require only $5,000.

Pay the stipulated amount regularly and use any extra money towards the principal. This way you will be able to pay off your home loan quickly.

5. Refinance your mortgage:

Apply for a new loan to refinance your mortgage. This will help you reduce debt in many ways.

Refinancing can lead to lower interest rates resulting in increased savings. Owners can refinance for a short term and get out of debt quickly.

For example, instead of refinancing for a 30-year mortgage, the refinance can be for a period of 15 years. Monthly payments will be greater when you refinance for a short term. But owners could reduce their interest costs by half over the life of the loan.

Scott says that those owners with Federal Housing Administration or FHA can do away with private mortgage insurance, or PMI if they refinance to a regular loan. Insurance on a regular mortgage can be eliminated if the owner has at least 20 percent equity in their homes. In such cases, money used to pay PMI premiums can be redirected to pay the mortgage principal thus reducing the repayment period.

6. Choose a flexible term mortgage:

When you refinance, choose a lender who offers flexible term mortgages. These mortgages offer more than the regular 15-30 year options. Ishbai says in such cases you can pick the term of your loan. For example, Quicken Loans offers terms ranging from eight to 30 years.

Shorter the term, lesser the money spent on interest payments in the long run.

Ishbai suggested that you work with an independent broker who will help you work out a short-term, that you comfortable repaying.

7. Consider using an adjustable-rate mortgage:

10 years ago when the housing market collapsed, adjustable-rate mortgages helped in numerous foreclosures.

The loans started with a  low introductory rate of interest that was adjusted to the higher rate of interest after a specific period of three or five years.

In the recession, homeowners who were able to make the initial mortgage payments realized that they were unable to do so once the interest rates increased. As property value was falling, owners realized that they could not sell their houses for the amount they owed as well.

Given this erratic past, many homeowners may not opt for adjustable-rate mortgages. But families with stable finances may find this useful.

Lomardi says that most owners live in a house for a period of five to seven years.  Adjustable –rate mortgage can help build equity in a house quickly. Low interest may lead to additional savings in that can be used to pay off the principal.

Your home is your best asset. Make your home more valuable by using means to pay off the principal, reduce the interest rate on the loan and shave off years from your mortgage term.

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