Tips for Paying Off Your Mortgage Early from a Financial and Real Estate Expert
When purchasing a home, most homebuyers in Granbury Texas finance their purchase with the help of a mortgage loan. The most commonly used loan types include those that require a 30-year commitment.
Since this is a standard loan term not many people think too much about it. But if you take some time to sit down with the focus of owning a home in Granbury outright and not owing money to the bank, it requires paying the loan in full. When responsibly making payments on time, this is designed to take 30 years from the time you sign the paperwork. That is a long time, and it can feel impossible. Some homeowners may think they will just always be paying a mortgage on whatever home they are in.
But it is possible to pay off a mortgage early in a home you hope to actually own all on your own. It is even possible to pay your mortgage off early. Financial expert Dave Ramsey has some tips on how to do it.
Tips to Pay Your Mortgage Early
It Starts with a Down Payment
Making a large down payment on a home has become more of a challenge for many homeowners. There are many loan options that require very little down on a home. Ramsey's advice is to try and put down at least 10% on your home purchase. The more you are able to put down the more money you will save. If you can't put down 10% put down as much as you possibly can, because the more you put down on the home with your own money, the less you have to borrow, and the less interest you will pay.
If you can put enough down to avoid having to carry private mortgage insurance, this is money you could use toward extra payments on your home loan.
Find a Trustworthy Expert Agent
An expert local agent can help you to determine what the best price to pay for a specific Granbury home would be. They will negotiate on your behalf and help get you the best price possible for your home purchase. Results have shown that the help of a buyer's agent is significant when it comes to helping you stick to your buying goals.
Make sure you are in a financially stable place and ready for the cost of homeownership
You may be able to pay the monthly mortgage requirements on a loan but it might leave you stretched a little thin. Though you can make it work it's not really an affordable purchase if you have to live uncomfortably to be able to afford a certain home. You want to make sure that you are purchasing within your financial means and not buying an overly expensive home for what you can comfortably handle.
Ramsey suggests asking yourself some financial questions to determine if you are in a stable place to afford the cost of homeownership. They include being debt-free in other areas of life and having six months of savings, having a 10 to 20% down payment, having the cash to pay off closing costs and moving expenses, not taking on a mortgage payment of more than 25% of your net salary, and being able to afford the cost of utilities and maintenance.
He also advises not to take on a mortgage that is more than a 15-year term. In some cases, a home buyer might be able to do this and if this is possible it is the best option. It is understandable however if you are unable to take on a shorter term for a mortgage to be able to pay for a home.
Refinance to a shorter term or pretend you did
If you have the ability to refinance to a lower interest rate which turns into a lower required monthly mortgage payment it can be tempting. Ramsey suggests that refinancing should only be done if you are looking for a shorter loan term however not lower payments. Often people refinance for a lower payment and end up stretching out their loan term for even longer.
If you have a 30-year loan with only 25 years left and you refinance for a lower payment with a new 30-year loan you just increased the amount of interest you were paying by five years. If you can't afford to turn your 25-year loan term into a 15-year loan this is a different story. If it is not possible to get a bank to offer a 15-year loan term then try and make payments on your own on your current loan as if you had a 15-year mortgage. This will enable you to pay your current mortgage off sooner.
Find ways to save money in everyday life and put it toward your payments
Cutting out on frivolous spending can help you to save some money that you can put towards extra mortgage payments and help you to get your loan paid down in a better amount of time. Ramsey suggests first looking at making your lunch at home and bringing it to work instead of eating out. He says that this can save the average person around $1200 a year and can amount to paying off a mortgage three years early.
If possible make an extra house payment every quarter
The more money you pay into your mortgage over the required monthly payment the more money will be put toward the principal balance of the loan. One extra payment of your monthly mortgage amount every three months could save you a significant amount of time on the terms of your loan. You could also opt to pay one extra payment on your loan per year. You could more easily do this by dividing your monthly payment by 12 and adding this amount to each monthly payment. These two methods could save a Granbury homeowner anywhere from 4 to 11 years off their payment depending upon the terms and how much extra they pay into the loan.
Ramsey says that any extra amount owed for the required monthly payment is a good idea even if you just round your required monthly payment up to the next tens of dollars. Every bit that you pay above your required amount helps you to save money on interest over the life of the loan.
For more information on real estate in Granbury Texas and surrounding areas please contact us anytime.