Monday, May 2, 2011

5 Ways to Pay off Your Mortgage Faster

Pay your 30-year mortgage off early and live a debt free life sooner than you’re too old to enjoy it!

Confronting down a 30-year mortgage can be psychologically and financially demoralizing. It’s discouraging to think that most people will be in their 50’s and 60’s sooner than they eventually pay off their mortgages.

One key to resolve this psychological and financial issue is to pay down your mortgage early thereby reducing the quantity of time that you’ll be having difficulties with the monthly payments. It will end up costing you more each month, which may make even more psychological stress, but at least the end will be in sight.

Tax deductions are an additional advantage of paying your mortgage off early. The majority of your early payments go towards the interest on the loan, which is tax deductible. Pay more towards the mortgage in those early years and you may possibly break even on taxes.

Here are a few popular strategies from a reputable third party service like the California Escrow Service that homeowners use for paying down their mortgage early:

Refinancing: Refinance your mortgage for a shorter term at a lower rate. You will likely be paying more per month-how else would it be potential to pay off the same loan amount in half the time?-but the term will be much shorter. The one disadvantage to this approach is that you will have to pay the closing costs, which means that it may take a few months to break even.

Large annual lump sum payments: Utilize your tax return, bonus, inheritance, or other big check to make one annual lump sum payment per year. If any of these amounts are unexpected yearly windfalls to you anyway, then you’re not going to miss them by paying off your mortgage with them. You’re also not going to waste that money on an impulse buy.

Paying a little bit extra every month: Make an effort to pay a set amount of extra cash monthly on your mortgage. It can be something like 15% or perhaps just $100. One trick is to pay with a separate check and inform your lender that the payment is only to be used for the reduction of principal in order to build equity more quickly. The extra check is for tax purposes as principal payments are not deductible.

Bi-monthly mortgage payments: Work it out with your lender to pay your mortgage bi-weekly rather than monthly. The way that the weeks work out, you’ll finish up getting in an extra mortgage payment per year.

Paying whatever whenever: If your savings aren’t settled enough to pay down extra money on a regular basis, just pay what you can when you have it. Regardless how small, it all helps to decrease the length of your mortgage.

A few financial experts concern that there are times when it doesn’t make sense to pay off your loan ahead of time. This is mainly when you have debts that charge more interest than your mortgage rate.

No matter what your choice, there is an approach that will likely work for you. Anything that you are able to pay early will result in a shorter mortgage loan period-which will help you to attain the dream of a debt free life just a little bit earlier.

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