Getting ready to buy a home can be intimidating because it's such a significant financial commitment. Mortgage loan debt has been increasing for almost two years straight in the U.S., and Americans owe a total of $9.5 trillion on their homes.
Working with an experienced buyer's agent can help you find a house that is within your budget. To find a top-rated realtor in your area, connect with Clever today.
Once you own your home, the best option is to focus on reducing your debt load, and that means working hard to pay off your house. How long does it take? Here are six tips that can help.
Consider All Your Debts
A mortgage is often the largest debt you have, but it can also be one of the lowest in terms of interest rates. If you want to get debt-free, consider focusing on higher cost debt first such as credit cards or student loans.
Once you free up the money that was going toward credit cards or other expensive debt, you can put that cash toward the mortgage on your reasonably-priced home and pay it off faster.
Choose the Right Loan Term
Getting pre-approved for a mortgage is the first step to the home buying process, and it's a good time to review all of your options before you commit. Your buyer's agent can help you find a good lender and even point you toward state and federal programs to help you save money.
For instance, you might want to choose a 15-year or 10-year mortgage instead of a 30-year mortgage. You'll pay less in interest but your payment will be higher. Be sure you only make this choice if it makes sense for your budget. Putting too much stress on your finances upfront isn't wise.
As you review your mortgage options, be sure to choose a lender that doesn't have an early payoff penalty. If your goal is to eliminate debt, you want to make sure your lender is on your side rather than punishing you.
Choose a Biweekly Payment
Many of us are paid every two weeks, so why not pay the mortgage every two weeks instead of once a month?
Simply cut the mortgage amount in half and pay every two weeks. Because there are 52 weeks a year, you'll end up paying the equivalent of 13 full payments a year instead of 12, and you don't have to pull extra money out of your budget to do it.
As an example, for a 30-year mortgage of $200,000, making biweekly payments saves you over $30,000 in interest and allows you to pay off the loan almost five years earlier than scheduled.
Send Extra Payments — Carefully
Did you get a bonus at work, receive a gift or inheritance, or otherwise find yourself with extra money this month? If so, you can send extra money toward your mortgage.
However, be sure you mark the payment as “principal only.” That way the lender will apply it to the balance of the loan rather than interest, which saves you money. Using your windfalls this way is a great way to get a real impact instead of wondering where it all went.
Round-Up Your Payments
Another way to put extra money toward your mortgage is to boost your payment to the nearest round number. For instance, a payment of $1135 per month can become $1150 or even $1200. When you do this, you'll be putting small amounts toward the mortgage you won't even notice.
However, as you do this consistently over time, you'll find that you're paying down the loan faster than you expected. Even an extra $50 a month can make a huge difference over time.
Refinance for a Shorter Term
Perhaps when you bought your home you chose a 30-year mortgage, but now things have gotten better and you wonder if you can refinance. By shopping around with mortgage lenders, you may be able to refinance and get a lower interest rate and a shorter term.
The one thing to watch for is the refinancing fees. Many of the mortgage fees you paid when you bought the home will also apply to a refinance. If fees are extremely high or you already have a super low interest rate locked in, you might be better off making extra payments.
Buy an Affordable Home With a Great Buyer's Agent
If you truly want to pay your home off early — or even on time — you need to choose a home that makes sense for your budget. To find what you're looking for, you need a top-notch real estate agent who understands your market and your needs.
When you work with a Clever Partner Agent, you'll get the full-service experience you need to get a great home at an excellent price. With Clever, you can save even more if you qualify for a buyer's rebate. You can get $1,000 towards closing costs for a home purchase over $150,000 in most states.
Ready to get started? Contact Clever to learn more today.