Buying a home is a dream and if you have been able to fulfill the dream, you should be able to achieve another dream of being ‘100 percent debt free’. A home mortgage is a large expense paid typically for 15 to 30 years.
If you are secure financially; free of credit card debt, invest in retirement and have emergency funds that cover you for 12 months living expenses, paying off the mortgage early, makes financial sense, interest is tax-deductible. You can implement several strategies to reduce the duration. Initially, it may seem unrealistic; however, if you meet the criteria, you can reduce your mortgage debt. These are from Central Florida real estate agents Fred Franks, Katrina Barone, Brittney Mahaffey and Jordyn Brady of Sellstate Next Generations Realty. Read their 5 steps that can help you plan to enjoy 100 percent debt free life, in 5 steps to take to pay off your mortgage sooner.
Step1: Planning and discipline
Make a strategic plan to clear the mortgage, ensure no prepayment penalties apply. Impose discipline and gather all the paperwork and information – income, liabilities, or debt (assuming none) and investments. You can choose to refinance for a lower interest rate and if you reduce the interest by 1 percent and shorten the loan time frame.
If you are on a tight budget, you will achieve this by refinancing the 30 years fixed rate mortgage to 15-year mortgage. If you have been paying for 5 years, on a 30 year, 6 percent fixed mortgage of $200,000, refinancing for 15 years, 2.87 percent fixed rate; the payments will increase by $80 each month. Moreover, in 10 years you will pay off the loan, build equity and save $130,477 in interest because the term is shorter and the interest is lower. Fred Franks states, " One of the main problems for most people is having the discipline to stick to a plan", "I had a home buyer who own a home in Ocala, FL, and wanted to search for homes for sale in Tampa FL, but after having her talk with my lender she was not able to get approve because of not paying her present mortgage on time".
Step2: Set a target payoff date
Once you refinance, you have a date set to pay the mortgage. The installments have increased by $80 after refinancing, increase the payments by $20 and pay $100. If possible, set a new target date to achieve the goal early. Rounding up payments help you pay off debt earlier if you have refinanced and do not qualify for refinancing.
Continue to pay large sums towards the mortgage debt whenever you have the additional amount. This will reduce the mortgage term.
Step 3: Start automatic biweekly payments
With the intention of reaching the new target payoff date, start biweekly payments and pay 13 installments in a year. Check with the bank for a statement that shows the amount you still owe. If you have bonds or CD (Certificate of Deposit) that has matured, you can put the principle amount towards the mortgage and reinvest the remaining. Moreover, you can use the entire amount towards mortgage instead of reinvesting.
Some money lenders may charge a fee while you may be able to accelerate the mortgage payment for no additional charges; discipline and commit to paying at free will using the next step earn the additional amount.
Step 4: Increase earnings and reduce expenses
Keep a watch on the budget and review it. Watch out for those expenses and reduce them. Small expenses add up and you can manage those simple things like cut cable service, switch to cheaper car insurance provider, prepare and pack lunch and coffee at home, and do not invest in new clothes or entertainment options. You will save $3500 per year by doing these things diligently.
Increase earnings by volunteering extra work hours or work freelance, or part time to earn more money. Use the extra income, investment earnings, tax refunds, work bonus and winnings in a card game to prepay the mortgage.
Step 5: Self-motivation and reward
It is essential to keep yourself motivated year after year to achieve the set goal or earlier. Reward yourself through the mortgage payoff process, for every $5,000 paid towards mortgage, spend $100 and entertainment yourself or buy anything you like as a reward for achievement of the goal. You may want to celebrate with a short vacation for freedom from debt, in the end.
Discipline, commitment and constant motivation to be debt free will help you achieve the goal. You can take all these 5 steps, to achieve 100 percent debt free life, pay off your mortgage in a shorter duration and be a proud homeowner.