Writer: Jack Crosswell
You don’t always have to have a house payment.
Buying a new home is a great way to build long-term wealth and hedge against inflation over time. While there are clear advantages from buying a home, being burdened with a big mortgage is a daunting task. For those who are concerned about their mortgage and want to pay it off quickly, there are several tips to pay off their mortgage faster than ever.
Budget and buy a reasonable home
The most important tip in paying down your mortgage quickly is to budget and buy a home you can reasonably afford. One of the biggest ways people get into debt is buying a home well outside their budget. As a general rule, your total monthly housing costs (including taxes and insurance) should not cost more than 25 percent of your gross monthly income, ensuring you have more than enough money to continue to save after your purchase.
Increase payments annually
One advantage of owning is your payments are fixed for up to 30 years. This is unlike renting, which can see large annual increases of 5 percent or more in some markets. Over time being a home owner is more affordable than renting. If you are willing to forgo this monthly payment benefit and increase your payments to your mortgage each year, you could pay your loan much faster. Simply increasing your payments by 3 percent per year will cut more than a decade off your loan repayment time.
Apply tax benefits to loan balance
Another way to pay a mortgage down faster is to apply your tax benefits to the loan balance. Those who own their home can deduct their mortgage interest, mortgage insurance, and property taxes off state, federal, and local taxes. Depending on your situation, this could save thousands of dollars per year in tax charges. If you can take this amount of money and apply it to your loan balance, it will lead to a quick reduction in the principal balance.
Take advantage of low rates
Mortgage rates tend to fluctuate a lot over long periods of time. Because of this, you may be able to take advantage by refinancing for lower payments. When you do this, your interest payments decline. However, if you continue to make the same monthly payments, your principal balance will decline much faster and you eventually will be mortgage-free.
Owning a home is a great long-term investment decision, but for most people it requires a sizeable mortgage. For those looking to pay off their mortgage and live debt free, these tips can help.