Being able to pay off your mortgage in under 30 years
is not only possible, but it’s also very easy to do.
New data shows that nearly 40% of all homes in the U.S. have no mortgages whatsoever. The highest percentage is 54% in West Virginia. Maryland and D.C. are on the other end of the spectrum at just 27% and 24%, respectively.
Many believe that a real estate dream means buying a home and staying in it just long enough to have some equity and move up to a bigger or better home. If you’ve considered the idea of a forever home and want to be among the homeowners who are living mortgage-free, here are four tips to help you pay down that balance faster:
1. Switch to bi-weekly payments. Let’s use some real-life scenarios here: Say you have a mortgage of $200,000. With a 5% interest rate on a 30-year term, bi-weekly payments will actually save you $34,328 in interest and would shorten the length of your mortgage by five years. That’s pretty incredible for just one extra payment per year.
2. Make additional principal payments. Obviously, the first part of your mortgage will go toward interest. Making an additional payment to pay down the principal amount of the loan is going to help shorten it. On a $120,000 loan at 4.5% for 30 years, that would give you an extra $608 per month. Just an additional $25 payment per month on the principal would save you over $9,000 in interest.
“
If you can afford a higher
payment, shortening your term from
20 to 15 years is smart.
”
payment, shortening your term from
20 to 15 years is smart.
3. Switch to a 15-year term. If you can afford the higher payment, switching the term of your loan can save you a ton. On a $250,000 mortgage with a 4.5% rate, it would cost you $429,674 in principal and interest payments. The total interest is $179,674. With the same loan over 15 years, you would only pay $82,860 in interest. That’s about 46% of the interest on the 30-year loan. Typically, the interest rate on the 15-year term will be lower. Right now, you can get one at 3.125% at Wells Fargo.
4. Make small sacrifices. This could be as easy as skipping Starbucks or a dinner out on the town. The average American spends $3 a day on coffee. That’s another $90 that you could be committing to your mortgage each month, which would reduce your term by over four years while saving you over $25,000.
If you have any questions for me in the meantime, don’t hesitate to give me a call or send me an email. I look forward to hearing from you soon.
