Some Serious Advice on Paying Down Mortgages Faster
By John Voket
There is no better gift to give yourself this holiday season and in the New Year, than your own home - preferably owned outright.
So with the hope of getting consumers free and clear of their mortgage debt sooner, we tapped Durham, N.C. REALTOR® Bernice McNutt who blogged recently with these tips on how to pay down that homeowner's debt:
1. Accelerate bi-weekly payments - Instead of paying your mortgage on a monthly basis 12 times per year, McNutt says pay your mortgage every two weeks for a total of 26 payments each year. A $300,000 mortgage with a monthly payment and three percent debt service over 25 years will cost $125,920 in interest. Increase to accelerated bi-weekly payments and shave nearly three years off of your schedule, and save $16,059 in interest.
2. Round up your mortgage payments - McNutt says the quicker you can pay off your loan, the more you will save in interest. So round up your mortgage payments. If your accelerated bi-weekly mortgage payments are $543, consider rounding up to $600 instead.
3. Put ‘found’ money toward mortgage payments - McNutt believes unexpected sources of money such as a birthday gift or bonus at work are considered sources of ‘found’ money. ‘Found’ money can be easily applied to a mortgage without any impact to one's budget because it wasn’t money you were counting on. A one-time payment of $5,000 on a $250,000 mortgage at 3.75 per cent over 30 years will decrease the mortgage amortization by over 12 months.
4. Make a lump sum anniversary payment - McNutt says most banks will allow you to make an extra mortgage payment each year, which is applied directly to the principal. Taking advantage of this by making a lump sum payment — even if it’s as small as $50 a year — is a great way to chip away at your mortgage.