Hazys Quick Tips #2 (Playing the numbers)
30 years is a long, long time. If you buy your home when you are 25, that means you can expect to not have that loan paid off until you are 55. That means many homeowners will be grandparents before they are able to pay off their mortgage in full. This is a startling reality. Many of us with kids think about future goals and what it would be like to ease back on work so we can travel and spend time with our grandkids someday. A more realistic view, unfortunately, is continuing to work full time to try and pay off mortgages, student loans, and other debts.
This can be quite a bleak outlook, but there are things we can all do to take better control of our finances. The biggest piece of debt typically is a mortgage, this is what we will briefly explore here.
Here are a few things you can do now that can significantly reduce the number of years you are paying on a mortgage.
#1. Pay extra towards your mortgage each month. When you first take out a mortgage, consider setting a higher amount and sticking to that amount for the life of the loan. Amounts as little as $20 dollars extra a month can significantly reduce the overall amount you pay on your mortgage and can even shave off months of time in the end. The more you can pay extra each month, the larger the savings and reduction of mortgage time overall.
#2. Refinance to a shorter loan term. Changing your loan to a 15-year mortgage will mean higher payments each month, but it will also mean 180 fewer payments. This is a life-changing savings of time and money. Consider a 15-year mortgage if you find yourself with extra money left over each month with your present 30-year mortgage.
#3. Another option available to some homeowners is paying your mortgage bi-weekly. These bi-weekly payments would be half of your current mortgage payment. The difference is that with bi-weekly payments, you are actually paying less interest over the life of the loan. Stopping interest from accruing for an entire 30-day period allows you to pay more of the principal off with each payment.
This can seem too good to be true, but the math is on your side. Unfortunately, some loan holders won’t allow for partial payments to be applied to a loan. They may require a full payment amount to accrue before they will apply any payments to your loan. This removes the biggest benefit of making a partial, bi-weekly payment.
So, call your lender and inquire about this. Ask them if they allow for partial bi-weekly payments and if these payments are applied to your loan bi-weekly. You can save a lot of money if your lender permits this. The worst your lender can say is “no”, so it never hurts to ask.
Take time to consider the three options discussed above and consult with your lender on the options that may be best for you.
Hopefully, you have found this quick tip helpful!
Until next time.