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Tips to Paying Off Your Mortgage Faster

***GUEST POST BY Julie Cooper of Axiom Mortgage Solutions***


Chances are, if you own a home or just about to purchase one, you will have a mortgage – it is the largest debt you will ever carry! Even though interest rates may currently seem very low,  when its charged against a large sum of debt, it actually adds up to a lot more money than you may have realized!

For instance, on a mortgage balance of $250,000 at today’s low 5 year interest rate of 2.89%, you will pay $33,375.90 in interest over the five year term, assuming you only make the minimum monthly payments.  That’s equivalent to a nice new car!!

Fear not homeowners!  There are many ways to reduce the amount of interest you will have to pay!  From increasing your payments to paying more often, utilizing one or more strategies to pay down your mortgage faster will reduce the overall interest you will pay and get you to own your home outright sooner….Can you imagine what you could spend that mortgage payment on each month if your home was paid off??

Here are some ways to pay down your mortgage faster:


Frequency – this is the easiest one to implement for most people.  By changing your monthly mortgage payment to an accelerated biweekly payment, you would save $485 in interest during the 5 year term*.  This may not seem like a lot – but tell me the last time you took $500 cash and put it in your shredder?  What really makes a significance with this strategy is you would end up paying off your mortgage 2 years and 8 months faster if you made the biweekly payments for your whole 25 year amortization.

Increasing the Minimum Payment – most mortgages allow for borrowers to increase their minimum payment.  Depending on who your lender is, this can range from 10% of the minimum payment to 25%.  A good rule of thumb I believe is adding $100 to your minimum monthly payment – if you couldn’t afford an increase in your mortgage payment of $100, then you may be in a home you can’t afford.  If you increase your monthly mortgage payment by $100, you will have the same benefit as paying biweekly.  However, if you make your payment biweekly, and increase that by $50, you will save $971 over the 5 year term* in interest and pay off the mortgage 5 years faster! (assuming additional payments made over the full 25 years)

Another very good reason to increase your payments is because of today’s low, low interest rates.  While rates are low, prepaying as much as you can will reduce your mortgage balance faster.  At the end of your term, when rates will most likely be higher, you will have less mortgage principle to expose to a higher interest rate.  More importantly for some borrowers, they have protected themselves from “payment shock” – this is when your interest rate is higher, so your payment is higher, without it being a choice!  Isn’t it better to choose to pay more to principle now than be forced later on to pay more money to interest?

Lump Sum Payments – as with increasing your payments, most lenders allow for borrowers to make lump sum payments against their mortgage principle.  This too can range from 10% – 25% of the original mortgage balance, depending on the lender.  For lenders who offer 15%, this works out to a minimum prepayment privilege of $37,500* per year!  The nice part is you don’t have to scrape together the full amount and get one lump payment opportunity – the $37,500 is a maximum, so as you come across lump sum opportunities (ie tax returns, bonuses, overtime, etc) you can apply them!  If you were able to pay biweekly, increase your biweekly payment by $50 and put only $5,000 in lump sums against your mortgage each year, you would save $1,474.78* in interest on the five year term and payout your mortgage 7 years faster!

It’s clear that utilizing all strategies gets you mortgage free faster.  While it isn’t always possible to implement all three strategies all the time, it is important to consider which is the easiest to do and to start there.  These examples are just that – calculating lower or higher payments or lump sum payments is easy for your mortgage professional to do for you – let them know your payout goals and what your budget for saving and spending looks like, and they can come up with a personalized strategy for you to implement and can adjust it for you as life changes.  Take control of your destiny!  Call your mortgage professional today!




*numbers calculated based on a $250,000 mortgage, 5 year term, fixed rate of 2.89% over 25 year amortization



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