4 Tips For Paying Off Your Mortgage Before 30
Paying off your mortgage before 30 is quite an enormous task. But it can be done if approached the right way. The mortgage you’ve taken to secure a roof over your head is quite possibly the biggest transaction you’ll ever make. Housing isn’t cheap in the US, with the average median price for housing being $370,000.
Most people take out 30-year mortgages with the average interest rate being 4%. That means you’ll be paying your mortgage for up to 30 years! But since you want to pay it off before 30, then here are a few tips that help you do that.
Making Extra Payments
A mortgage calculator is an excellent tool that tells you exactly how much you can expect to pay each month for your mortgage. By using one of these calculators, you can calculate hypothetically how much you’ll pay if you make extra payments.
Let’s say you want to pay off your mortgage before you hit 30 and you have 10 years to do it. While very few people buy houses when in their early 20s, you will know exactly how much money you’ll pay by using a mortgage calculator and calculating extra payments.
The more extra payments you make, the less interest you’ll pay since you’ll be paying off your mortgage sooner. If you’re currently paying $1,000 on your mortgage, throwing in an extra $500 will significantly shorten the loan repayment time.
Making biweekly payments is yet another form of making extra payments. What both have in common is that they help you pay off your mortgage sooner. If you have the money to make the same monthly payment amount but on a biweekly basis, then you’ll shorten the mortgage repayment time by as much as double. That means you’ll repay a 30-year loan in 15 years.
Unfortunately, making biweekly payments with the original monthly amount is easier said than done. But if you have the finances and want to repay your mortgage by the time you hit 30, there is no better way to do it than this.
Refinancing the Mortgage
Refinancing the mortgage is a surprisingly common way to repay sooner. Many Americans do it and to a surprisingly successful degree. Refinancing means trading your original mortgage plan for a better one – one that suits your needs more.
In your case, you’ll be shortening the loan repayment time by paying more. What everyone reading this article should know is that the sooner you repay the mortgage, the less interest you’ll be paying. Refinancing a 30-year mortgage with a 15-year mortgage will allow you to repay it much sooner. But let’s discuss what interest means when refinancing.
Let’s take into account that you’re taking a $200,000 loan with a 4% interest rate over 30 years. By the time you pay off the mortgage, you would’ve paid more than $140,000 in interest! So the logical thing to do is to refinance the mortgage from 30 to 15 years and save more than $75,000 in the process! Doing this not only saves you a ton of money, but you’ll be right on track to financially secure your future by 40.
Other Things To Do
So far we discussed the three things that directly impact the decision to pay off your mortgage by 30. But let’s see what other things you can do.
Saving as much money as you can and putting it towards repaying your mortgage is a great way to pay it off much faster. When having this in mind, you must do all kinds of things to save more money. Have a Netflix and Amazon Prime subscription? Well, why not cancel one of them? That way, you’ll save as much as $120 each year.
Maximizing Your Down Payment
Most will agree that the 20% rule is outdated. Nowadays, you can put up to 4% for a down payment. But this is an obvious mistake from your end. You might be eager to buy a house, but the golden rule to pay less is to pay more upfront. If you manage to take care of 50% of the total payment, then that means you’ll take out a much smaller loan.
If we take the previous example of buying a house for $250,000 and putting 20%, then that leaves you with a $200,000 mortgage loan. If you put 50% for a down payment then that means you’ll be taking out a $125,000 mortgage loan – saving hundreds of thousands of dollars in the process.
Don’t Buy More House Than You Can Afford
And the best way to pay off your mortgage before 30 is to not spend a fortune on a house. Don’t buy a huge house if you don’t have the financial power. Instead of buying a house that costs $250,000, why not settle for one that costs $200,000? That way, you’ll have a much easier time paying off a 15-year mortgage loan.