You are here probably because you have a mortgage on your home or property and have been looking for ways to get out of the debt distress. While it must have been a thoughtful decision that made you choose your loan against property, regular monthly repayments might make you want to find a solution to pay off the mortgage without having to stretch it for a longer time.
No one wants their mortgage to be a lifelong hurdle. So, here were present three strategies that you can consider to pay off your mortgage quickly.
3 Strategies to Pay Off Your Mortgage
Pay Off More Amount inMonthly Instalments
A majority of your monthly instalments goes towards the mortgage interest. If you choose to pay more amount on your instalments, it would contribute towards paying extra on the principal too. The more principal is paid off, the lesser the interest payments would be. Check with your financial institution regarding the options to make extra payments towards the principal amount. Some financial institutions might charge a prepayment penalty for doing so and some only accept extra payments on certain terms and conditions. Whatever be the case, do make sure the extra money goes towards the principal and not towards the payment for the upcoming month.
Make Use of Sudden Bonuses and Increments
Next time you receive some extra funds, for example, a sudden bonus, an inheritance payout, a tax refund, or a monetary gift, do not think twice. Make use of the money to pay off towards the mortgage principal payment. Any such potential windfall that you receive unexpectedly can be used to pay off your mortgage payments.
Once you make an effort to pay a little extra on the principal amount, you will see the difference in the years ahead. Because, once the principal amount gets reduced, you will only be paying a smaller amount towards the interest. If your company gives you a pay raise, it will be a good idea to dedicate that extra income to your monthly mortgage payments.
Divide Your Payments
Consider bi-weekly payments for your mortgage. If you opt for monthly instalments, you will be making 12 payments in a year. However, if you consider biweekly payments, with each instalment amount being half that of your monthly payment, you will make 26 payments in a year (considering the fact that a year has 52 weeks), which makes it 13 full payments in a year. The one extra payment each year can make a big difference in due course. By accelerating the mortgage payments this way, you get to make extra payments to the balance of the principal amount. This enables you to pay off your mortgage faster. The earlier you pay off the principal amount, the more savings you can make on the interest payments.
Why Would You Want to Pay Off Your Mortgage Early?
To Save More on Interest Payments
By paying off a lump sum amount towards the mortgage principal, you reduce the years of interest payments, thereby reducing the overall interest on your loan. Since interest is paid on the overall balance left, this could save you a lot of money that would otherwise be spent on interest payments.
To Reduce Financial Strain
By paying off your mortgage early or by even paying a lump sum amount towards the remaining principal amount, you can lower your monthly payments and the number of instalments left to pay. This can free up some cash that can further be used to pay off your loan. This therefore leads to less financial strain and better savings for the future.
To Expand Your Credit
By paying off your debts early, you can improve your credit score. This increases your future borrowing capacity, qualifying you for higher amount from financial institutions. In the long run, you can invest in another property and eventually earn appreciation for both.
Mortgage can seem like an uphill battle if you have years left to pay it off. It can affect your kids’ education, your retirement plans, your dream vacation plan, or even your health. Hence, the reason to pay off a loan quickly can vary from person to person. While making mortgage loan repayments, do not just stick to the minimum payment that you need to make. Making prudent use of any extra income that you can afford and other strategies mentioned above can make you debt-free earlier than you expect.
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