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Mortgage Loan Tips: How to Pay Off Debt Fast

Written by Posted On Thursday, 20 October 2016 15:16



Almost everyone wants to know how to pay off debt fast. Shouldering a long-term mortgage loan can be emotionally and financially challenging if the homeowner can’t predict his or her financial future.


It’s important to think about how to save money at each step of the home-buying process. Most Americans want to buy a home at a favorable price and pay for the home with in the lowest available mortgage rate. Learn more about how to determine mortgage payment before buying real estate now.

Buy Property at a Favorable Price


Buying real property at a favorable price almost always begins by establishing a relationship with an experienced realtor. The realtor helps the buyer to identify great properties for sale. His or her strong connections can help the homeowner make wise real estate finance and investments decisions. Negotiating a lower sales price and using a monthly home loan payment calculator are two ways to make prudent decisions at this stage.


According to the Wall Street Journal, about two-thirds of Americans use a mortgage loan to buy real estate. Even buyers with good or excellent credit might not automatically receive the benefit of the mortgage lender’s best mortgage loan rate:


  • Check and compare mortgage loan rates and interview lenders before submitting a mortgage loan application.

  • Ask each lender about the components of a monthly mortgage payment.


If the property owner wants to avoid living with too much debt, it’s important to know how to determine mortgage payment. Use a monthly loan payment calculator to estimate how much owning a new home will cost.


If the homeowner has already taken steps to pare down existing debt before owning a home, knowing how to pay off debt fast can make dreams of living with no or low debt a reality. Making extra payments on outstanding debt and living on a budget are tried-and-true methods to help the first home saver build a strong financial future.


Real Estate Finance and Investments 101

It’s possible to pay down a mortgage loan faster than the mortgage term as long as the mortgagor allows. Paying more each month and making extra payments when possible will reduce the loan principal balance:


Make an Extra Payment Every Three Months

  • Let’s assume the home buyer takes out an average 30-year mortgage at 4 percent. He or she finances a USD 220,000 principal balance.

  • If the homeowner makes just one extra payment every three months, he or she will pay down the mortgage loan in about 19 years instead of 30.

  • An extra payment each quarter also allows the mortgagee saves about USD 65,000 in interest payments to the mortgage lender.


Make an Extra Payment Once Per Year

Making early investment loan repayments is easier by planning ahead:

  • Divide the monthly mortgage loan payments over the next three months by 12.

  • Add this amount to the monthly mortgage loan payment or, alternatively, make half-payments (bi-weekly payments) to the lender.

  • This method allows the mortgagee to make an extra annual payment.

  • An extra mortgage payment reduces mortgage loan interest by USD 24,000 and reduces the mortgage loan term to 26 years instead of 30.


RoundUp Mortgage Loan Payments

Rounding up the monthly mortgage payment can benefit even the most cash-strapped property owners. Paying just a few extra dollars each month and/or making an extra payment at bonus time can help to reduce mortgage principal and interest. Use a monthly loan payment calculator to consider how fast savings add up.


Of course, it’s important to know that the mortgagor isn’t applying extra payments to the next monthly mortgage payment:


  • Before taking these steps, ask the mortgagor about making extra principal payments or, as suggested above, ask the mortgage lender for this information before submitting a mortgage loan application.

  • Some lenders access penalties for prepayment or allow mortgagees to make additional payments at certain times.

Refinance a Long-Term Mortgage

It’s possible to pay down debt fast even if the buyer purchased a home 10 or 15 years ago. Obviously, refinancing a long-term 30 year mortgage loan is an important first step. Interest bearing investments, including mortgages, have declined over the period:


  • Shortening the mortgage term can also help to pay off debt fast. Many financial experts say that the home loan should account for no more than 25 percent of take-home pay.

  • Lock in a fixed rate mortgage at today’s rates. Although APR rates have adjusted down with lower interest rates over the past decade, rising interest rates will have the opposite effect.

  • A 15-year mortgage allows the first home saver or existing homeowner to pay down debt at a faster rate. The mortgagee pays more towards the principal balance and less interest to the mortgagor.


If the bank or mortgage lender allows, it’s also possible to reduce the mortgage term by increasing the monthly payment. Use a loan payment calculator to estimate how much money is saved by increasing the monthly mortgage payment on a regular basis using today’s mortgage loan rate. For instance, if the monthly payment is currently USD 2,000 and the mortgagee adds just USD 200 per month, it’s possible to reduce the 15-year mortgage term to about 10 years at this time.

Live on a Budget


Knowing how to pay off debt fast can include making or adjusting a budget. A first home saver may already live on a budget. Regardless of where the mortgagee is in life, living on a budget can make it possible to pay down debt and/or make additional real estate finance and investments:


  • Consider buying a smaller home even if the mortgagor approves a larger mortgage loan.

  • Alternatively, sell a home that’s appreciated in value and buy a less expensive property.

  • Make a larger down-payment on a smaller home or pay cash for the new residence.

  • IRS says that up to USD 250,000 from home sale proceeds is excluded from capital gains taxes for an individual or up to USD 500,000 for married people filing a joint tax return.


If financing the smaller home is necessary, use a loan payment calculator to predict the monthly mortgage payment. Then consider how much cash is left over to make other financial decisions, such as:


  • Pay down additional outstanding debts

  • Pay educational costs outright

  • Save more money for retirement in a tax-advantaged 401(k) or Individual Retirement Account (IRA)


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Sarah Smith

Sarah works with many real estate business owner to upskill their current license to further their employment prospects.

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