Home loans are good debt linked to an asset that can increase in value and even make you an income. Most homeowners won’t regret having a mortgage, but they would probably prefer to pay it off sooner than their loan period if they could do so.
However, it’s all too easy to let your home loan tick away in the background when you don’t know the tips and tricks you can use to reduce them faster. You might be on track to pay off your home loan sooner when you take these actions:
Make Extra Payments
You can enjoy competitive repayment terms and interest rates when you work with reputable lenders like Associates Home Loan. However, that doesn’t mean you can’t make even more savings than you already are. Consider making extra monthly payments if you’re able to do so.
Even one extra monthly payment can contribute to less interest paid over the life of your home loan. The less money you have to pay in interest, the quicker you might be able to pay off your loan and live that coveted mortgage-free lifestyle.
Round Up Your Payments
Mortgage repayments on the average mortgage loan are carefully calculated to the exact day you’ll pay it off in your chosen duration. Right now, you might be paying a figure below what you could comfortably afford.
Consider rounding up your payments to the nearest hundred to contribute even a small amount more to your monthly mortgage repayments. For example, if you’re paying $478 per week, you might round that up to $500 per week or $2,000 per month.
Refinance to a Shorter Home Loan
Many first-time buyers take out home loans over 30 years. The longer the loan period, the more manageable your monthly repayments can be. However, a 30-year-plus mortgage can mean you make more interest payments than someone with a shorter loan period. If you’re determined to save money and have calculated that you can afford to increase your repayments, consider refinancing to a shorter home loan.
Choose a Fixed Rate Mortgage
Interest rates can often be a deciding factor in the loan product you choose. It makes sense to opt for a mortgage product with the lowest interest rates since that’s additional money you’ll pay on top of the loan principal.
However, there can be comfort in the known. Take care when choosing between adjustable-rate and fixed-rate mortgages. Your adjustable rate loan’s interest rate might initially be lower than a fixed rate loan, but it may not be that way forever. Calculate how much interest you can comfortably afford to pay, and if an adjustable-rate loan has the potential to exceed that, consider opting for a fixed-rate mortgage instead.
However, there’s no harm in weighing the pros and cons of each option before you decide. For example, you can enjoy the predictability of a fixed-rate mortgage but can’t take advantage of dropping interest rates when you’re locked in for a set number of months. If you opt for an adjustable-rate mortgage, you can enjoy initial lower interest rates but face rate uncertainty and payment shock if interest rates rise dramatically.
Apply Extra Earnings
Spending any extra money you receive, like a generous bonus at work, a raise, or an unexpected windfall, can be tempting. While there’s no harm in treating yourself, consider putting the rest on your mortgage. You might not think you’re making much difference, but taking this action multiple times over the course of your loan might result in thousands of dollars of savings in interest.
Maximize Your Earning Potential
You might have set your mortgage duration and terms based on your current earning potential. However, you might enjoy more favorable repayment terms if you increase your income. There are plenty of options for how to do this using your new house asset:
Find a Boarder
Not everyone wants or needs an entire house to themselves. Instead, they just need an affordable bedroom and use of shared spaces like a kitchen and bathroom. If you have a spare room, consider renting it to a boarder. You might make several hundred dollars of extra income each month simply by sharing your home with someone else. You can then set this money aside and put it onto your mortgage in a lump sum to reduce your interest payments.
Rent Parking Spaces
If you live near a business district with limited parking, you might be well-positioned to use your home’s parking spaces to your advantage. Many people would be willing to pay a homeowner a set sum each week just to park their vehicle there while they work nearby.
Take On Short-Term Tenants
Accommodation platforms like Airbnb are popular with people looking for cheap temporary housing. If you can advertise more competitive rates than hotels and motels, you might find plenty of people wanting to pay to stay in your home for days or weeks at a time.
Good debts like mortgages can be an investment in your assets, but that doesn’t mean you want them to stick around longer than they have to. Try some of these home loan-reducing tips above, and you might enjoy significant long-term savings.