Pay Off Mortgage Early: 4 Ways To Do It, pay off mortgage early.#Pay #off #mortgage


4 ways to pay off your mortgage early

If you can afford it, it might be simple to pay off your mortgage earlier. But should you? That’s a complicated question.

Homeowners with low mortgage rates may be better off putting extra money in a Roth IRA or 401(k), both of which might offer a higher return than paying off the mortgage.

Then there’s the college aid factor. If you’re applying for need-based aid for your kids, that home equity could count against you with some colleges because some institutions view equity as money in the bank.

If, after those caveats, you want to pay off your mortgage early, here are four ways to make it happen.

1. Refinance with a shorter-term mortgage

You can pay off the mortgage in another 15 years by refinancing into a 15-year mortgage.

Let’s say you got a 30-year fixed-rate mortgage for $200,000 at 4.5 percent. Then, five years later, you can refinance into a 15-year loan at 4 percent. Doing so pays off the mortgage 10 years earlier and saves more than $60,000 (if you exclude closing costs on the refi).

Those shorter-term mortgages often carry interest rates a quarter of a percentage point to three-quarters of a percentage point lower than their 30-year counterparts.

Refinancing isn’t quick or free. It requires filling out the application, providing documentation and having an appraiser visit. There are closing costs.

And even with a lower interest rate, that quicker payoff means higher monthly payments. And this method is a lot less flexible. If you decide that you don’t have the extra money one month to put toward the mortgage, you’re locked in anyway.

Unless the new interest rate is lower than the old rate, there’s no point in refinancing. Without a lower rate, you’ll get all the same benefits (and none of the extra costs) by just increasing your payment a sufficient amount.

2. Pay a little more each month

Divide your monthly principal and interest by 12 and add that amount to your monthly payment for a year. Result: You make the equivalent of 13 payments in 12 months.

Let’s say you got a $200,000 mortgage at 4.5 percent. After five years of making the minimum payments, you add an extra 1/12 of a month’s principal and interest to each monthly payment. Doing so pays off the mortgage three years and three months earlier and saves more than $18,000 interest.

Before you make anything beyond the regular payment, call your mortgage servicer and find out exactly what you need to do so that your extra payments will be correctly applied to your loan.

Let them know you want to pay “more aggressively” and ask the best ways to do that.

Some servicers may require a note with the extra money or directions on the notation line of the check.

In any event, if you’re putting extra money toward your loan, always check the next statement to make sure it’s been properly applied.

3. Make an extra mortgage payment every year

Instead of paying a little more each month, make one extra monthly payment each year. One way to do this is to save 1/12 of a payment every month, and then make an extra payment after every 12 months. This gives you the flexibility to use the extra savings for something else if a more pressing expense arises.

Let’s say you do this starting the first month after getting a 30-year mortgage for $200,000 at 4.5 percent. That would save more than $27,000 interest, and you would pay off the mortgage four years and three months earlier.

4. Throw ‘found’ money at the mortgage

Get a bonus? A tax refund? An unexpected windfall? However it ends up in your hands, you can funnel some or all of your newfound money toward your mortgage.

Let’s say you got a 30-year, fixed-rate mortgage for $200,000 at 4.5 percent. Then, five years later, you can make an extra $10,000 lump-sum payment. Doing so pays off the mortgage two years and four months earlier, and saves more than $19,000 in interest.

The upside: You’re paying extra only when you’re flush. And those additional payments toward the principal will cut the total interest on your loan.

The downside: It’s irregular, so it’s hard to predict the mortgage payoff date. If you throw too much at the mortgage, you won’t have money for other needs.


Should you pay off your mortgage early? Money Advice Service, pay off mortgage early.#Pay #off


Should you pay off your mortgage early?

With mortgage interest rates so low, some argue that there’s no point in paying off your mortgage early. Others argue that paying off debt is always a good idea in an uncertain economy. We weigh up the options, so you can decide.

Early mortgage repayment – Questions to help you decide

Should you save or pay off your mortgage early? Answer these questions to help you decide.

1. Do you have any other more expensive debts?

Expensive debts are those which cost a lot to pay off over time.

Credit cards and store cards, for example, charge a high rate of interest over the course of a year.

Other examples might include unsecured loans, where the interest rate is significantly higher than the cost of your mortgage borrowing.

Always pay off more expensive debts before thinking about reducing your mortgage – but don’t rack them up again.

2. Are you putting money into a pension scheme?

Top tip

On a £150,000 mortgage at 5% with 25 years remaining, paying off a £5,000 lump sum will reduce the interest by £11,500 and the repayment term by 18 months.

Pensions are a tax-efficient way to save because the government tops up your contributions with tax relief.

And, if you have a company scheme your employer might pay into the scheme too.

If you don’t have a pension and have money to spare, it’s important to think about paying into one.

The earlier you start, the sooner your retirement pot will start to grow.

So think about this before deciding to use your savings to pay down your mortgage early.

It’s also worth taking stock of any existing pensions you have to see if it’s worth paying more into them.

3. Could your family cope financially if you died?

Do you have dependants? The cost of putting in place life assurance is relatively low – if you’ve not got this already and have a family or other dependents then now’s the time to think about it.

4. Can you get a savings rate higher than your mortgage interest rate?

If you’re already contributing to a pension scheme, rather than pay off your mortgage it might make more sense to put your money into a savings account.

That’s if you can find one which pays a higher rate of interest than the rate you’re being charged on your mortgage.

To get an accurate comparison, work out what the rate amounts to, after you’ve paid tax on your savings.

Some savings accounts – such as ISAs or some National Savings Investments accounts offer tax-free returns you can benefit from.

Other things to consider if you want to pay off your mortgage early

Keep some money in reserve

Ensure you have saved enough money to keep you going for at least three months before paying off your mortgage early.

Will you be charged for overpaying your mortgage?

Check your mortgage deal to get an accurate picture of how charges can cut into any savings, which result from overpaying your mortgage.

You could be charged for paying your mortgage off early or making a monthly payment, which goes over your agreed monthly limit.

Many lenders will let you overpay up to 10% a year without penalties.

Do you have a flexible or offset mortgage?

Flexible mortgages – including offset mortgages – allow you to overpay your mortgage and then draw back the money if you need it – all without charge.

The benefits of overpaying your mortgage

If you overpay your mortgage it doesn’t just mean you have less to pay in future years, it might mean that you can pay your mortgage off sooner – sometimes even years earlier.

On a £150,000 mortgage at 5% with 25 years remaining, paying off a £5,000 lump sum reduces the interest by £11,500 and means you repay 18 months earlier.

Overpaying when interest rates are low means you’ll have a smaller mortgage to be charged the higher interest on.

If you decide to overpay your mortgage

If, after weighing up all the facts, you decide to overpay, then you need to time it right.

If your mortgage interest is charged daily, then the sooner you make the overpayment the better.

If it’s charged annually, then you need to time your overpayment so that it counts towards the calculation of the interest for the year.

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  • 12 Good Reasons Why You Should (and Should Not) Pay Off Your Mortgage Early –


    12 Good Reasons Why You Should (and Should Not) Pay Off Your Mortgage Early

    Do I think it s wise for you to pay off your mortgage early?

    You may as well ask me if I think it is a good idea if you paint your living room sage green.

    I used to think paying off your mortgage was an absolute no-brainer.

    Then I did a complete 180, changing direction like one of those day-glo orange heliport windsocks. Oh yes, I did.

    After resurveying the macroeconomic condition of the United States and trying to interpret the future direction of its fiscal policy, I was ready to declare that maybe, just maybe, prepaying the mortgage isn t a good idea after all.

    Suddenly it just didn t seem like it made much sense to pay down a 30-year $120,000 mortgage at 4.5% interest if I truly believed that high-inflation was inevitable down the road as a result of Fed s relentlessly lax monetary policy and the current administration s plans to greatly expand the size of the Federal government and its entitlement programs.

    The question of whether or not I think you should pay off your mortgage is not as cut-and-dried as, say, whether or not I think you should pay off your credit card balances in full each month. Of course you should pay off your credit cards in full each month; but when it comes to paying off the mortgage early, there are solid arguments that can be made either way.

    Here are 12 good reasons why you should and should not pay off your mortgage early. Which ones resonate most with you?

    Good Reasons Why You SHOULDN T Pay Off Your Mortgage Early

    1. You haven t capitalized on your employer s company match to your workplace retirement plan.

    If, for example, your employer matches you dollar-for-dollar on the first 3% of your contributions to your 401(k) plan, then you re throwing away free money. If he matches even half that amount, then you re still passing on a sure-fire 50% return on your money. Opportunities like that don t come up too often. Take advantage of them when you can.

    2. You have other debt that accrues at a higher interest rate than your home loan.

    It makes no sense to pay off a mortgage if you re carrying credit card debt at a higher interest rate. When you pay off a credit card with a 15% interest rate, for example, then every dollar of debt you pay off earns you an instant 15% return. Not too shabby.

    3. You have yet to establish an emergency fund equal to at least three months of living expenses.

    It doesn t make much sense to be making extra payments on your mortgage if you can t withstand a sudden loss of income due to unemployment, or suffer a major financial expense that forces you to choose between paying the mortgage or, for example, having a major car repair made.

    4. You want to maintain more liquidity/flexibility.

    Many people like to have a ready source of funds that can be easily converted to cash in order to quickly react to business opportunities, for example.

    5. You owe significantly more on your house than it is currently worth.

    If your mortgage is upside down, the fact is you are more susceptible to foreclosure if you lose your job or suffer some other hardship that prevents you from making your payments.

    6. You have a family but haven t yet established life, health and disability insurance.

    If you are the lone bread-winner in the household, how will the mortgage be paid if you die, suffer a catastrophic health problem, or become severely disabled?

    7. You have a low fixed-rate loan and anticipate a bout of severe inflation.

    Inflation is a debtor s best friend. If you have a fixed rate mortgage with a very high balance, you might even want to root for high inflation. That s because inflation erodes the value of money, and when inflation is on the rise the value of your mortgage debt becomes less over time. For those who have fixed rate mortgages, the higher the inflation, the faster the value of that debt is reduced. Many people ask why they should pay off a fixed rate loan with more expensive dollars today if they strongly suspect those dollars will be worth significantly less within, say, the next five years or so.

    8. You are confident you can get better returns elsewhere.

    Let s say you have a mortgage with an interest rate of 5%. But in reality your effective, after-tax interest rate on your loan is less than that. If you re paying, say, 25% of your household income to federal and state tax collectors, then your effective interest rate is 25% (your tax rate) less than the original 5% or only 3.75%. After determining your effective interest rate, you may decide the bar is low enough that you d rather try earning a bigger return elsewhere.

    Good Reasons Why You SHOULD Pay Off Your Mortgage Early

    1. You re the type that believes peace of mind is priceless.

    How do you sleep at night? I know more than a few people with paid-off mortgages that swear they sleep like a baby every single time their head hits the pillow.

    2. You want to remove the cost of your mortgage from your future living expenses before you retire.

    What better way to temper the impacts of living on a fixed income than by making sure your mortgage is paid off before you retire?

    3. You re more concerned with getting a steady guaranteed return than risking a bigger payday through the stock market or other investment opportunities.

    As far as Suze Orman is concerned, it makes more sense to pay off your home before making investments anywhere else:

    You cannot live in a tax return. You cannot live in a stock certificate. You live in your home.

    People who have the best grip on their personal finances naturally abhor paying interest. Personally, I hate paying interest. To anybody. For anything. But that s just me.

    So Is Paying Off Your Mortgage Early A Good Idea?

    Well, that depends. In the end, the correct answer really comes down to which reasons are most important to you.

    Don t let anybody tell you otherwise.

    For additional perspectives on this topic from the Money Mavens, check out these articles:


    Should you pay off your mortgage early? Money Advice Service, pay off mortgage early.#Pay #off


    Should you pay off your mortgage early?

    With mortgage interest rates so low, some argue that there’s no point in paying off your mortgage early. Others argue that paying off debt is always a good idea in an uncertain economy. We weigh up the options, so you can decide.

    Early mortgage repayment – Questions to help you decide

    Should you save or pay off your mortgage early? Answer these questions to help you decide.

    1. Do you have any other more expensive debts?

    Expensive debts are those which cost a lot to pay off over time.

    Credit cards and store cards, for example, charge a high rate of interest over the course of a year.

    Other examples might include unsecured loans, where the interest rate is significantly higher than the cost of your mortgage borrowing.

    Always pay off more expensive debts before thinking about reducing your mortgage – but don’t rack them up again.

    2. Are you putting money into a pension scheme?

    Top tip

    On a £150,000 mortgage at 5% with 25 years remaining, paying off a £5,000 lump sum will reduce the interest by £11,500 and the repayment term by 18 months.

    Pensions are a tax-efficient way to save because the government tops up your contributions with tax relief.

    And, if you have a company scheme your employer might pay into the scheme too.

    If you don’t have a pension and have money to spare, it’s important to think about paying into one.

    The earlier you start, the sooner your retirement pot will start to grow.

    So think about this before deciding to use your savings to pay down your mortgage early.

    It’s also worth taking stock of any existing pensions you have to see if it’s worth paying more into them.

    3. Could your family cope financially if you died?

    Do you have dependants? The cost of putting in place life assurance is relatively low – if you’ve not got this already and have a family or other dependents then now’s the time to think about it.

    4. Can you get a savings rate higher than your mortgage interest rate?

    If you’re already contributing to a pension scheme, rather than pay off your mortgage it might make more sense to put your money into a savings account.

    That’s if you can find one which pays a higher rate of interest than the rate you’re being charged on your mortgage.

    To get an accurate comparison, work out what the rate amounts to, after you’ve paid tax on your savings.

    Some savings accounts – such as ISAs or some National Savings Investments accounts offer tax-free returns you can benefit from.

    Other things to consider if you want to pay off your mortgage early

    Keep some money in reserve

    Ensure you have saved enough money to keep you going for at least three months before paying off your mortgage early.

    Will you be charged for overpaying your mortgage?

    Check your mortgage deal to get an accurate picture of how charges can cut into any savings, which result from overpaying your mortgage.

    You could be charged for paying your mortgage off early or making a monthly payment, which goes over your agreed monthly limit.

    Many lenders will let you overpay up to 10% a year without penalties.

    Do you have a flexible or offset mortgage?

    Flexible mortgages – including offset mortgages – allow you to overpay your mortgage and then draw back the money if you need it – all without charge.

    The benefits of overpaying your mortgage

    If you overpay your mortgage it doesn’t just mean you have less to pay in future years, it might mean that you can pay your mortgage off sooner – sometimes even years earlier.

    On a £150,000 mortgage at 5% with 25 years remaining, paying off a £5,000 lump sum reduces the interest by £11,500 and means you repay 18 months earlier.

    Overpaying when interest rates are low means you’ll have a smaller mortgage to be charged the higher interest on.

    If you decide to overpay your mortgage

    If, after weighing up all the facts, you decide to overpay, then you need to time it right.

    If your mortgage interest is charged daily, then the sooner you make the overpayment the better.

    If it’s charged annually, then you need to time your overpayment so that it counts towards the calculation of the interest for the year.

    Did you find this guide helpful?

    Care to share?

    • Share this article on Facebook

    Share this article on Facebook

  • Share this article on Twitter

    Share this article on Twitter

  • Share this article by Email

    Share this article by Email


  • Should you pay off your mortgage early? Maybe not, pay off mortgage early.#Pay #off #mortgage


    Should you pay off your mortgage early? Maybe not

    If you’re able to pay off your mortgage early, should you do it?

    It seems like a simple decision, but there are actually many sides to the story. CNBC asked several advisors to weigh in, and they came up with a number of pros and cons.

    When it s wise to pay it off

    “I recently talked my own mother into paying cash for a new home, as she is entering retirement,” said Elizabeth Grahsl, certified financial planner and vice president at Prosperity Bank. “The downsides are that she has to recognize a fair amount of capital gains to sell enough assets to pay for the home outright … [and] she’ll lose the mortgage-interest tax deduction.”

    But the downsides are nothing compared to the interest and closing costs she’ll save, said Grahsl, compared to even a 15-year mortgage.

    Pay off mortgage early

    “And because her retirement expenses will be so much lower without a mortgage, she won’t need to withdraw as much from her portfolio for income,” she added. “That will save her income taxes and capital gains over the coming decades, as well as enable her to retire with a lower portfolio value.”

    Grahsl generally recommends that people near or in retirement pay down their mortgages rather than invest more in stocks or bonds. While mortgage interest rates are low, she said, the market is near all-time highs, and both stocks and bonds seem overvalued.

    “Over three-plus decades, I do think the market will outperform today’s mortgage rates,” she said. “But retirees don’t need to take that gamble.”

    Russ Weiss, a CFP with Marshall Financial Group, offers both pros and cons. The pros include:

    • Peace of mind. “A lot of what I do is managing behavior vs. managing investments,” he said. “If paying off a mortgage means the client is less likely to panic with their portfolio value down, I am inclined to recommend it.”
    • Good savings vehicle. “Some clients are not good savers,” Weiss said. “By paying off the mortgage, it creates a form of forced savings.”
    • Taking more risk in the overall portfolio. “By paying off the mortgage, it allows us to revisit the investment portfolio structure and allocate more money to stocks.”

    When it s wise not to pay it off

    Weiss also lists several reasons for not retiring a mortgage early, including:

    • Leverage. “By borrowing for long periods of time at low rates and investing the difference, the client will most likely end up with more wealth versus paying off the mortgage.”
    • Right-sizing debt. “People typically buy too much house and therefore take out too much of a mortgage,” he said. “If paying off the mortgage is a concern, they should consider the possibility they purchased too much house. The right amount of debt is favorable to long-term wealth growth, assuming a low-interest-rate environment.”
    • Inflation hedge. “Paying off the mortgage does not help to provide income,” Weiss said. “Plus, the bank takes all the risk. Over a 30-year history, assuming the borrower makes all the monthly payments, the bank can never call the loan. This provides for a fixed payment for 30 years that will never change. Taking inflation into account, it’s possible that 20 years into the mortgage, the payment will be equivalent to an electric bill or similar.”

    There could be individual retirement account-related advantages to not paying the mortgage off, said Julie A. Schatz, CFP and partner with Investor’s Capital Management.

    “If the client is retired and their adjusted gross income is relatively low,” she said, “then having a mortgage interest deduction [along with property tax, maybe charitable contributions, etc.] on their Schedule A will reduce their taxable income even further and allow more room for tax-efficient Roth conversions.”

    Don’t retire the mortgage early if you’re not staying put, said Kristi C. Sullivan, CFP and owner of Sullivan Financial Planning.

    “If a client thinks they will be in a house for 10 years after the mortgage payoff, I encourage them to do it,” she said. “But if they want to move soon after they are able to pay off the mortgage, I don’t.”

    “It’s great to save the interest, but not at the expense of liquidity if this is not your forever house,” Sullivan said. “Why pay $20,000 in interest to get $6,600 back from the IRS?”

    For his part, David Mendels, a CFP and director of planning at Creative Financial Concepts, said that “far too many clients focus on paying off their mortgage in retirement, only to end up ‘land poor.'”

    “Especially at today’s low rates,” he added. “I urge them to think less in terms of the added payment than of the added safety net of the extra cash.”

    The only exception to this rule is if the money is going to “burn a hole in their pockets,” Mendels said.


    Pay Off Mortgage Early: 4 Ways To Do It, pay off mortgage early.#Pay #off #mortgage


    4 ways to pay off your mortgage early

    If you can afford it, it might be simple to pay off your mortgage earlier. But should you? That’s a complicated question.

    Homeowners with low mortgage rates may be better off putting extra money in a Roth IRA or 401(k), both of which might offer a higher return than paying off the mortgage.

    Then there’s the college aid factor. If you’re applying for need-based aid for your kids, that home equity could count against you with some colleges because some institutions view equity as money in the bank.

    If, after those caveats, you want to pay off your mortgage early, here are four ways to make it happen.

    1. Refinance with a shorter-term mortgage

    You can pay off the mortgage in another 15 years by refinancing into a 15-year mortgage.

    Let’s say you got a 30-year fixed-rate mortgage for $200,000 at 4.5 percent. Then, five years later, you can refinance into a 15-year loan at 4 percent. Doing so pays off the mortgage 10 years earlier and saves more than $60,000 (if you exclude closing costs on the refi).

    Those shorter-term mortgages often carry interest rates a quarter of a percentage point to three-quarters of a percentage point lower than their 30-year counterparts.

    Refinancing isn’t quick or free. It requires filling out the application, providing documentation and having an appraiser visit. There are closing costs.

    And even with a lower interest rate, that quicker payoff means higher monthly payments. And this method is a lot less flexible. If you decide that you don’t have the extra money one month to put toward the mortgage, you’re locked in anyway.

    Unless the new interest rate is lower than the old rate, there’s no point in refinancing. Without a lower rate, you’ll get all the same benefits (and none of the extra costs) by just increasing your payment a sufficient amount.

    2. Pay a little more each month

    Divide your monthly principal and interest by 12 and add that amount to your monthly payment for a year. Result: You make the equivalent of 13 payments in 12 months.

    Let’s say you got a $200,000 mortgage at 4.5 percent. After five years of making the minimum payments, you add an extra 1/12 of a month’s principal and interest to each monthly payment. Doing so pays off the mortgage three years and three months earlier and saves more than $18,000 interest.

    Before you make anything beyond the regular payment, call your mortgage servicer and find out exactly what you need to do so that your extra payments will be correctly applied to your loan.

    Let them know you want to pay “more aggressively” and ask the best ways to do that.

    Some servicers may require a note with the extra money or directions on the notation line of the check.

    In any event, if you’re putting extra money toward your loan, always check the next statement to make sure it’s been properly applied.

    3. Make an extra mortgage payment every year

    Instead of paying a little more each month, make one extra monthly payment each year. One way to do this is to save 1/12 of a payment every month, and then make an extra payment after every 12 months. This gives you the flexibility to use the extra savings for something else if a more pressing expense arises.

    Let’s say you do this starting the first month after getting a 30-year mortgage for $200,000 at 4.5 percent. That would save more than $27,000 interest, and you would pay off the mortgage four years and three months earlier.

    4. Throw ‘found’ money at the mortgage

    Get a bonus? A tax refund? An unexpected windfall? However it ends up in your hands, you can funnel some or all of your newfound money toward your mortgage.

    Let’s say you got a 30-year, fixed-rate mortgage for $200,000 at 4.5 percent. Then, five years later, you can make an extra $10,000 lump-sum payment. Doing so pays off the mortgage two years and four months earlier, and saves more than $19,000 in interest.

    The upside: You’re paying extra only when you’re flush. And those additional payments toward the principal will cut the total interest on your loan.

    The downside: It’s irregular, so it’s hard to predict the mortgage payoff date. If you throw too much at the mortgage, you won’t have money for other needs.


    6 Steps To Pay Off Your Mortgage Early #mortgage #broker #fees


    #pay off mortgage early

    #

    6 Steps To Pay Off Your Mortgage Early

    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.

    In 2010, I set a personal goal to pay off my mortgage by March 2015, my 30th birthday. Following the steps below, I reached my goal several years ahead of schedule. I got rid of my $86,000 mortgage just 2 years after buying a one-bedroom condo in Atlanta, Georgia.

    Here are the 6 steps I followed to pay off my mortgage faster

    Step 1: I BOUGHT A HOME I COULD 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, but not me. The bank is just guessing. I examined my monthly budget and determined what I wanted to spend on housing. It ended up being much less than what the bank told me I could afford.

    Step 2: I GOT A 15-YEAR MORTGAGE

    I decided to 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 my case, the interest rate for the 15-year loan was 0.75% lower than the 30-year mortgage.

    Step 3: I SET A TARGET PAYOFF DATE

    Shortly after moving into my new condo, I used an online mortgage payoff calculator to set a payoff goal that would be both challenging and attainable. I posted reminders of my goal around the condo and let my close family and friends know about it so they could help hold me accountable.

    Step 4: I STARTED AUTOMATIC BIWEEKLY PAYMENTS

    In order to speed up my mortgage payoff, I started automatic biweekly payments through my loan provider. I paid half of the monthly mortgage payment every 2 weeks. That s basically the same as 13 monthly payments a year. My bank got 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: I REDUCED EXPENSES AND INCREASED EARNINGS

    I reviewed my budget from top to bottom to find ways to reduce expenses and increase my earnings. This is how I learned to sweat the small stuff because all of those credit and debit card purchases really add up!

    Here are a few ways I saved:

    • Cut cable service Saved $600/year
    • Switched car insurance providers Saved $480/year
    • Packed my lunch Saved $1,000/year
    • Made coffee at home – Saved $500/year
    • Stopped buying new clothes Saved $1,200/year

    I also volunteered for extra shifts at the office, waited tables part-time, and picked up pet sitting gigs on Craigslist to make more money. I used all of my extra income, including tax refunds and work bonuses, to prepay the mortgage.

    Step 6: I REWARDED MY SUCCESS

    I never felt deprived throughout the mortgage payoff process because I rewarded myself along the way. For every $5,000 I knocked off my mortgage, I allowed myself $100 to spend on whatever I wanted. Sometimes I didn t even use that money because I was so focused on reaching my goal. When I sent my final mortgage payment to the bank in December 2012, I booked a vacation to celebrate my freedom from debt.

    FINAL THOUGHT

    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. As a middle-class professional, paying off my $86,000 mortgage in 2 years was not easy. It required discipline, organization and most importantly, the right attitude.


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    How to Pay Off Your Mortgage Early – Real Simple #estimate #house #payment


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    How to Pay Off Your Mortgage Early

    Photo by Mikey Burton

    If you’re in the market for, say, a four-bedroom Colonial just about anywhere in America, you’re in luck. Home buyers haven’t had it this good in years: Sales prices have plummeted as much as 50 percent since 2006, and interest rates are at historic lows (at press time, about 3.5 percent for 30-year fixed loans). As a result, many people can buy a home today without taking on a mountain of debt.

    Experts agree that it pays to reduce debt in all areas of your life—and, in an ideal world, to eliminate it completely. So if you’re financially secure (meaning you’re free of high-interest credit-card debt, you’re investing in your retirement, and you have an emergency savings account that will cover 6 to 12 months’ worth of vital living expenses), paying off your mortgage makes sense—yes, even though interest payments are tax-deductible. Meeting this criterion and eliminating your debt completely may be unrealistic for you, but reducing your debt isn’t. Here’s how to get it done.

    5 Smart Strategies to Reduce or Eliminate Your Debt

    1. Refinance to a lower interest rate. Despite rock-bottom rates, millions of creditworthy Americans have not yet refinanced. And that’s a shame: Borrowers who refinanced during the second quarter of 2012 lowered their rate by an average of 1.5 percent. For a $200,000 home loan, that translates to savings of about $2,900 in interest payments over the next 12 months, according to Freddie Mac. (To calculate how much you could save, use the refinance calculator at Money.CNN.com. which, like Real Simple. is owned by Time Inc.)

    If you plan on staying in your home for at least three more years and your mortgage is at least $100,000, with an interest rate of 4.75 percent or higher, ask your current loan servicer or lender for its best refinancing rate. Then compare that with rates at banks that you already have accounts with. Or you can opt to work with an independent mortgage broker to find the lowest rate, says Keith Gumbinger, the vice president of HSH.com. a mortgage-information site. If you can reduce your current interest rate by .75 to 1 percent, go ahead and refinance.

    To help the process go smoothly, gather the following paperwork: proof of income (two recent pay stubs), copies of asset information, your tax returns for the previous two years, and proof of investments and other income. Additionally, be prepared to offer explanations for any recent income irregularities, credit inquiries, or job gaps. “Lenders question these situations because they could be an indication that you can’t afford your current loan,” says Gumbinger.

    2. Refinance to shorten your loan’s time frame. It’s becoming increasingly popular for home owners—even those on tight budgets—to refinance their 30-year fixed-rate mortgages to 20- or even 15-year ones. Today’s low rates allow you to do this while keeping your monthly payment fairly close to the current amount, says Erin Lantz, the director of Zillow’s Mortgage Marketplace. a real estate–valuation website. Say you’ve been making payments on a 30-year, 6 percent fixed-rate mortgage of $200,000 for five years. If you refinance to a 15-year, 2.87 percent fixed-rate loan (typical at press time), for example, your payments will increase by less than $80 a month. Yet you would pay off the loan 10 years earlier, build equity faster, and save an astonishing $130,477 in interest.

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