- December 18, 2020
Pay off Your Mortgage Faster and Relax Thereafter
Getting rid of debt is the biggest stress reliever. Usually, owing a debt has a psychological pressure on an individual which causes stress.
There are different types of loans offered by lenders, such as guaranteed loans for unemployed and many more. Some of them require no obligations, while others may require them.
One of the common loans is home loans. If you have borrowed a home loan, it is essential to repay on time as it has to slash interest rates. Inability to repay your loan on time may lead to a decrease in your credit score. There are many people with a history of very bad credit, loans are available for them too with no guarantor and no broker.
Different people have different benefits of repaying the loan faster than the stipulated time frame. For some people, paying off debts is a stress reliever, while for retirees; it can be a source of increased cash flow.
In the case of a mortgage, the interest rate is directly proportional to the loan amount. The bigger the amount, the higher is the interest rate.
The aim is to pay off your mortgage irrespective of the reason. With these strategies, homeowners can pay off their mortgages faster and get rid of the debt.
- Extra payments
One of the ways to speed up paying your debt is to split your monthly payments into half. This comes up to biweekly payments. By splitting up, instead of paying once a month, you will be paying twice a month.
Splitting in half would not cause a burden as it will be hardly notable in the monthly budget. Before splitting, it is important to ask your lender for the biweekly payments. Some lenders may agree to the idea, while some may not.
The second method is to pay more amount than what is calculated. This will help wave off your debt faster by chipping off the principal amount and saving hundreds of dollars.
While paying extra, make sure you check with your lenders whether your payment is being applied correctly. There should be no room for confusion.
The extra payment should be taken in the way of reducing payments and not the extra payment for the next month. It is wise of you to ensure that the lenders apply for your payments the correct way.
It is important to save some cash in the form of savings and not to wipe off all your money in the mortgage. These savings will help you deal with any emergency or unexpected expenses.
Refinancing is advisable only when it offers a lower interest rate. Many times, there are fees associated with refinancing which should be checked before borrowing.
Refinancing allows you to pay off your debt in a shorter term. For example, a 30-year mortgage will be refinanced for a duration of the 15-year-old mortgage.
Recasting is different than refinancing. It requires a lump sum amount to be paid towards the principal amount.
The bank will adjust this lump sum amount, and the amortization schedule will be reflected with a new remaining balance. Paying off a lump sum amount shortens the loan term.
Recasting, as compared to refinancing, involves lower fees. On the contrary, refinancing is better if the interest rates are higher.
- Collective payment
Another alternative option is to pay collectively towards your principal amount whenever you feel capacitated. At times, homeowners may inherit money or get a huge amount of money by selling valuable items.
The benefit of paying this lump sum amount is to save yourself from the recasting fee.
To differentiate between recasting and paying a lump sum amount, you should specify as to when the extra amount is being paid towards your principal amount.
- Offset savings against the mortgage
Linking your savings account to your mortgage account is a good option to pay off your debts faster. The interest is being calculated on the amount you borrowed minus your savings amount in your linked account.
Offsetting your savings account against the mortgage will lead to overpaying your mortgage every month.
For example, if you have a £100,000 mortgage and £2,000 in a linked savings account, you’ll only pay interest on the £98,000.
- Reduce your mortgage term
Theoretically, shortening and overpaying your mortgage yield the same result. Whereas, in practical life, shortening allows you to increase your monthly payment amounts and to overpay you to pay a lump sum amount whenever you can.
If you plan to reduce your mortgage term, it will involve a formal agreement between you and the lender. Simultaneously, reducing your term will make you debt-free in a shorter time. Or, it is there, then you can opt for small funding options like text loans.
- Pay mortgage fees in the beginning
Most of the mortgages have certain fees involved with them, but lenders may not allow the borrowers to pay it upfront and want them to add up in the overall loan amount. To avoid piling up your loan amount, it is advisable to pay your mortgage fee in the beginning.