Having your own home is essential to comfort and security, two of humans' most critical needs. But, the psychological and financial stress of worrying about a 25-30 years mortgage may end up denying you the safety and comfort that drove you to get the mortgage in the first place. Here are a few things to do if you want to pay off your mortgage in as little as five years.
1. Choosing a good mortgage term
A mortgage term is the number of years you are expected to pay your mortgage loan before the house becomes your own. Mortgage terms are usually flexible, meaning you can extend them or shorten them by completing your payment before the time elapses. One key to helping you pay off your mortgage loan quickly is choosing a suitable mortgage term. While 30 years is prevalent, mortgage term options of 5 years, ten years, 15, and 20 years exist. Selecting a term such as ten years or 15 years will help you pay off your mortgage quickly by reducing the interest (because interest rates increase with the mortgage term) while paying more to your principal instead of the mortgage company.
2. Make a sizeable down payment
The second step towards paying off your mortgage quickly is making a sizeable down payment. Immediately your mortgage application falls through, try as much as possible to make the first payment of 20-25%. Making a considerable down payment will take a massive bite out of the loan. To do this, it is advisable to have some savings that will go into the first payment before you start applying for the loan.
Apart from the first payment, subsequent sizeable payments go a long way in reducing your loan period and financial burden. These subsequent additional payments do not have to be as huge as the first one; they just need to be substantial enough to make a difference. They can be 2, 5, or 10% of the mortgage paid every year or six months. Setting aside an entire paycheck or two is an excellent way to achieve this.
3. Cut down on unnecessary expenses
Unnecessary expenses have severe consequences on personal finances, especially long-term loans. If you have or plan to take a mortgage, then you need to reorganize your priorities. There are many finance management self-help guides available online to help pay off your mortgage. These articles try to teach readers how to manage their finances and spend wisely. The significant point they all convey is to spend money only on what is necessary while choosing the most affordable options. Doing this will leave more money available to be diverted into servicing your mortgage.
4. Boost your income
While saving money is essential, boosting your income will make it easier to do all of the steps above. Earning more will help you save more, thereby increasing your down payment, increasing your regular and subsequent payments, and reducing your mortgage period. By taking up more streams of income or earning a new certification or skills to earn more from your current job, your dream to pay off your mortgage loan will get closer to reality.
5. Work with the current rates
Mortgage rates are interest rates payable on your loan. These interest rates can be very high or low based on existing national or economic trends. So, it is crucial to observe the trends and choose a period when the rates are meager. For example, mortgage rates for 15 years fixed average hovered between 2.5-2.6% between May 3rd and May 9th, 2021. Compared to 2019, when it peaked at 5.34%, now is an excellent time to get a mortgage.
6. Try seven years
After observing the steps above, you picked up your calculator, crunched the numbers, and it still doesn’t look like five years is going to be enough to own your home finally, then you can increase it to 6 years, or even seven years. To pay off your mortgage loan in 5 years is achievable, but adding an extra year or two is not bad if you cannot meet the goal.
The benefits of paying off your mortgage are numerous. Eliminating future expenses that make it harder to pay off your mortgage and reducing the long-term burden on your finances is a good place to start. Paying off your mortgage is a decision that will leave your finances and mental health better off. Even if you are unable to pay everything by the 5th year, the commitment to a five years payment plan will set you on the path to owning your own home quicker than the period stated in the mortgage term. Start today, connect with an agent to help you.