Paying off your mortgage
07 Apr 2021
Most property owners spend years paying back the bank the money they owe for the loan issued to buy the house. This debt is quite frequent and would often be paid in full, plus interest, over a specific number of years, generally 30. Because of the large sum that had been borrowed, paying off the loan Is not simple and will take up time. However, there are ways which could help you shorten that period, allowing you to pay the debt quicker. This would enable you to fully enjoy your salary and spend money as you like it.
First of all, Investopedia defines mortgage as “a loan that the borrower uses to purchase or maintain a home or other form of real estate and agrees to pay back over time.”* Most people do not have enough money to purchase property without taking out any loans – not because of a low salary, but because property is expensive. Therefore, the loan will allow you to buy the property without paying the full price upfront. In short, the buyers go to a bank and apply for a loan. Based on the income that they have and other factors, the lender will work out and determine the maximum amount that could be borrowed. If everything is accepted and the deal is reached, the borrowers will start paying a fixed amount every month to slowly start paying off the debt, plus interest. As previously mentioned, the bank will have agreed with the borrowers on the number of years that the amount would need to be paid back.
Are there any alternatives to taking out a loan? Can you pay your mortgage quicker? There are ways which you could take to avoid dragging the payment for such a long time. If you still need to borrow money, you can opt for a 15-year, 10-, 20-, and 25-year loan. One may think that this is worse as you will need to pay the full amount in a shorter time. That is true, however, the interest will have less impact on the full amount, therefore, you will be paying less. The main disadvantage is that you will be paying more money monthly, but it will be for a shorter period of time, meaning that once the debt is settled, your pay will be spent on whatever you want, without the need to worry about debt. What’s more is that the money you will save from the extra costs of the interest could be better spent somewhere else.
This is one of the most obvious – yet challenging ways to pay off your mortgage quicker. Whenever you can, pay more than the amount required. This, of course, requires a lot of dedication and patience as you will be choosing to dedicate the amount of extra money you have to the loan. Most banks do not have a problem if you pay the loan before or paying extra monthly. Whether you can make these payments monthly or a sizeable one yearly, you will be paying off your debt quicker. For example, if you get an income tax refund or a pay bonus, consider paying that extra amount. It may seem little, but it may save months – if not years, if done frequently.
Bi-weekly payments are an alternative to paying your debt every month. Here, you would be paying half your mortgage every week, resulting in a shorter time to pay your debt. However, you cannot simply decide when to start making extra payments as your lender will need to know when to expect the payment. Irregular payments will cause confusion. For example, you could speak to your lender and agree that a payment would be made on the 15th of every month. This would help as it notifies the lender of when the payment is coming and will also keep you aware to plan your finances.
Loan the right figures
This would be something to consider before taking out the loan. Do not target houses that are over your budget or ones that will be tough to pay off in the long run. It will end up being a burden on you, which could end up creating extra stress. A property that is out of your budget will require a big loan, that you may struggle to pay off. So why do that? You can learn more about the factors to consider before making property purchases here.