Smart Strategies to Quickly Pay Off Your Mortgage
Buying a home is a costly experience, and that’s before you start making your monthly mortgage payments. Fortunately, mortgage rates are starting to drop again, making it a good time to consider purchasing one of our new homes in Lakeville MN. Whether you choose a 15- or 30-year mortgage, that interest still adds up though. However, with some careful planning, there are some strategies to shave off a few years of payments, ultimately reducing the amount of interest you pay, saving you money in the long run.
One way to speed up your payment is by adding a little extra to each monthly payment – though it must be specifically paid on the principal. An extra $100 a month could ultimately save you tens of thousands of dollars in interest and reduce your payment period by roughly five years. You do need to make sure the extra payment is applied appropriately or you won’t reap the same benefit.
If you don’t want the hassle of making the extra principal payment each month, you could simply make one extra payment each year, specifically on the principal. The idea is to save up some money throughout the year or use any lump sum, such as a bonus, to make one extra payment. While it may not seem like a lot at first, it does help reduce your principal, thus reducing the amount you pay interest on. On a 30-year loan, this can shave off around four years of payments and certainly reduce the amount of interest paid.
If you purchased your home when rates were higher and have a 30-year loan, one option is to refinance to a shorter-term loan. You will need at least 20% equity based on your home’s current value and you need to be prepared for much higher monthly payments, even with a lower interest rate. Don’t forget that there are also closing costs involved in refinancing. It’s important to talk to your lender and determine when you’ll break even, in order to see if this option is really worthwhile.
Rather than refinancing, you could create your own amortization schedule, outlining how much you need to pay each month to meet your new goal. An amortization schedule shows your interest calculation and how the payment is divided into principal and interest. Working with your lender, you can create a schedule that mimics refinancing without the extra costs.
No matter which option you consider, make sure there are no penalties for paying off the principal early and make sure any extra payments go specifically to the principal. Also make sure that paying off your mortgage earlier is financially sound, as it may make more sense to put the extra money toward savings, retirement, education, and other important factors.
As you look at new homes in Lakeville MN, it’s important to have a clear understanding of your financial situation. This allows you to buy a great home at a price you can afford. Our houses are designed and built to be quality investments, as well as places you’re happy to call home. Contact us today to learn more about our extensive array of home designs that you’ll love for years to come.Tags: custom homes lakeville mn, homebuilder in lakeville mn, homes for sale lakeville mn