If one of your long-term financial goals is to eliminate mortgage debt before you retire, paying off a 30-year mortgage in just 10 years is a possibility if you plan for it well enough in advance. Personal finance expert Liz Pulliam Weston points out that while the prospect might sound attractive, there aren’t many people who can afford to do it. However, if you are in a position to pay off your mortgage sooner, it may make sense if the mortgage interest rate is higher than the returns you receive on a fixed-interest rate investment.
Pay off other debts so that you have more money to pay down the mortgage. Although a couple needs to be in pretty fair financial shape in order to pay off mortgage debt earlier, one strategy is to tighten your finances. Nationally known financial advisor Suze Orman recommends cutting your spending rather than simply shifting your debt. Either eliminate or find ways to reduce the cost of expenses other than essentials. To do this, you need to separate your wants from your needs. When deciding which expenses to tackle first, a practical move is usually to start by paying on high interest credit card debt.
Accelerate the payments on your current mortgage loan. This affords you the flexibility of making larger payments when you have the money or making the normal lower payment when money gets tight. Bear in mind that accelerating payments will only pay off in the end if you are disciplined enough to make extra payments on a consistent basis. Julie Jason, author of “The AARP Retirement Survival Guide: How to Make Smart Financial Decisions in Good Times and Bad,” explains that by adding $1,000 more to a monthly mortgage payment of $1,200, you can pay off a $200,000 loan balance in just 10 years on a 30-year fixed-rate loan at 6 percent interest.
Refinance your mortgage loan at a lower interest rate. Taking out a shorter-term loan can save you tens of thousands of dollars in interest payments. However, reducing the loan term will increase the amount of your monthly payments. Therefore, make certain that you are in a financial position that allows you to carry it off.
Make a lump sum payment on the loan principal. This won’t lower your monthly mortgage payment, but it will reduce the loan balance so that more of the payments you make each month go toward repaying the principal. You will also be paying less in interest, which translates into paying your mortgage off sooner. Bankrate offers an online mortgage calculator that shows what effect making extra payments will have on the pay off date of the loan.
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