No one likes debt. Facing a 30-year mortgage can be particularly daunting. With two-thirds of the nation’s households still carrying the burden of a mortgage, long-term debt is a common enough scenario.Thankfully, there are a number of reliable ways to shave years, if not decades, off of your mortgage schedule. By working with a mortgage lender like A and N Mortgage and adopting some simple strategies, you can make a significant dent in your loan, which will let you focus on enjoying your home instead of paying off your debt.
#1: Schedule Extra Payments
It’s very simple: Every time you make an extra payment, you reduce your principal balance. That means each new payment you make will go even further toward eliminating your debt. You’ll also reduce the amount of interest you end up having to shell out in the long run.In the end, you could save more than $60,000 in interest alone, just by making one additional payment each quarter. If you’re not ready to spend that much each month, try a more modest contribution; round up the total of each payment and you’ll end up chipping away at that final number. Even an extra $20 per month will eat away your principal and trim the amount you pay in interest—a slow but steady way to get out of debt.
#2: Make a Lump Sum Payment
Even if you can’t afford to make regular contributions, you can at least throw in the occasional payment when you get a bonus, come into a sizable inheritance, or receive a tax refund. Even something as small as reducing your monthly expenses every now and then can help you throw in some extra cash and cut down on your principal. Shelling out a lump sum is also great, because you won’t have to increase your monthly payment burden. That makes it easy to slash your debt without putting undue pressure on your finances.Overall, there are a number of ways to add extra payments, including:
- One additional payment each quarter
- Monthly increases (divide each payment by 12 and add that amount to each month’s total)
- Bi-weekly payments (half of your payment every two weeks, which will add one extra payment each year)
- Occasional payments
- Rounding up
Deciding which payment option is best for you depends upon your financial situation. In any event, you’ll have to run the plan by your mortgage provider to ensure they’ll accept the new payment schedule and won’t tack on too many prepayment fees. You’ll also have to specify that you want the additional payment applied to the principal and not simply to the next month’s payment.
#3: Refinance Your Home
Refinancing is the most direct strategy for knocking years off of your indebtedness. Get your mortgage provider to turn that 30-year mortgage into a 15-year mortgage, and you’ve chopped your loan schedule in half. Of course, you’ll have to pay attention to the market. If interest rates are rising, you might want to hold off so you don’t get locked into a new higher rate. If you do already have a great interest rate, you can always cheat. Just pay off your 30-year loan as if it were a 15-year mortgage, and … voila! You’ve reduced your debt and saved on the closing costs of a refinance at the same time.
#4: Downsize Your Home
If you hit some rocky financial roads and need to take drastic measures, there’s also the option to downsize. By selling off your current house and moving into a smaller dwelling, you can reduce the costs of owning a home, thereby giving yourself a life raft. It may be a more extreme measure, but downsizing is not just a last resort for people who have gotten themselves into tight spot. By reducing the overall cost of the house, you can negotiate a shorter loan without increasing your monthly payments. That’s great news for people who can’t afford to tack on additional payments but who are still committed to getting out of debt quickly. It’s also ideal for elderly people who face the double bind of increasing expenses and decreasing income. No matter why you choose to downsize, smaller homes bring smaller payments, and that can help you reduce your overall debt burden.