Banks approve mortgages for one reason only, to make money. Each time you pay your mortgage a large chunk of it is interest. That extra money you are paying is the lender’s profit and the longer you pay that mortgage, the more money they collect. Paying off your mortgage early is the easiest way to save yourself virtually thousands and thousands of dollars. This frees up your money which means less stress and more flexibility in your life.
Use Extra Space as an Airbnb
Utilizing a portion of your home as an Airbnb may put you out of your comfort zone, however it can pay your mortgage off much quicker, saving you a ton of money. It is important to note that creating an Airbnb on your property does not mean you are a hotel open for business 24/7 365 days a year. You are in control of when you will rent and how much you will charge. Any profit can be put towards extra payments on your mortgage or simply help you pay your mortgage. The average fee for renting a bedroom using Airbnb is $60 per night. Renting five nights a month can give you $300 per month. Putting an extra $300 per month on your mortgage will make you free and clear of your home loan years if not a decade early.
Jack Guttenburg, known as The Mortgage Professor explains, “A biweekly mortgage is one on which the borrower makes a payment equal to half the fully amortizing monthly payment every two weeks.” Since there are 26 biweekly periods in a calendar year the result equals one extra monthly payment per year. Meaning each 12 years you have an extra year paid off. This is a simple way to save money. If your mortgage is $1200 a month, you simply pay $600 a month every two weeks. You don’t have to pay any more than you would pay each year and you have paid off an extra month each year. This is a simple way to save money while paying your mortgage without actually paying anything extra.
Hit Principal Early
Through the first few years of homeownership, you will feel like you aren’t paying anything down. Looking at your statements, it will seem that you are paying only interest on your loan. This is an effect of compound interest. The definition of compound interest is, “the addition of interest to the principal sum of a loan or deposit.” That means it is literally an interest on interest. The interest in the next month is earned on the principal sum along with the previously accrued interest. This may seem complicated, but it is why for a few years it seems as though you are not paying the principal down. In order to rid yourself of compound interest, you must pay some of the principal early. Any amount you pay over your repayment goes towards the capital. That means as you go, you will be paying interest on a smaller balance. These larger monthly payments will cut years off your loan. You also won’t be throwing away so much money on the interest of your loan.
Use Your Tax Return
The quickest way to pay off your mortgage and ultimately pay less is to make extra payments as long as your mortgage allows. This is a great idea but can be very difficult to actually make happen. Something always comes up that you feel you need to pay for before paying extra on your mortgage. A great strategy is to use your tax refund as one large, extra payment each year. The average refund is almost $4,000 per year. Paying an extra $4,000 per year is equivalent to paying an extra $333 per month. With this simple strategy, you can pay your loan off an average of 12 years early. Imagine how much money you will be able to save with no monthly mortgage.
Paying more toward your mortgage is manageable if you can make a plan and be disciplined about your plan. Why give your hard-earned money away if you don’t have to?
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