How to pay off mortgage fast
Are you burdened with mortgage repayments? Wouldn’t you like to be rid of your mortgage? Here are some tips on how to quickly pay off your mortgage.
Make Extra Repayments
Making extra repayments will shorten the time it takes to settle your mortgage. It also reduces the total interest you pay.
For a 20 year mortgage of $200,000 at 6% interest rate, your monthly repayment is $1,432.86. Over 20 years you would have repaid 20 x 12 x $1,432.86 = $343,886.40. Your total interest paid is $143,886.40.
However, if you make an extra $200 towards your repayment every month, then you will pay off the mortgage in 16 years. Your total repayment is $310,310.48. Your total interest paid is only $110,310.80. You save $33,575.60 in interest.
Making extra repayments is the most effective way to hasten your dream to be mortgage free.
Make Frequent Repayments
Instead of making 12 repayments a year, could you make 13 repayments a year?
People who receive their wages weekly instead of monthly could practice this method. In a year, there are altogether 52 weeks. If you make repayments every 4 weeks, then you would have made 13 times repayments. You will shorten a mortgage of $200,000 at 6% interest rate from 20 years to almost 17.5 years. That's almost two and half years early.
Pay All Your Mortgage Costs Upfront
Some mortgage packages allow you to capitalize mortgage fees (eg. legal fee, valuation fee, stamp duty and MRTA) into the mortgage. These fees are added into the mortgage. Hence, your mortgage will be higher and you pay more interest. Instead of capitalizing these costs into the mortgage, pay these fees upfront if you can afford to do so.
Closing old accounts will reduce the overall credit limit available to you, hence making your existing debts seem larger as a proportion to your available credit limit.
Restructure Your Mortgage
If you have a residential property mortgage and a commercial property mortgage, it makes sense to max out your residential mortgage. This is because interest rate is lower for residential mortgage.
One way to do this is to take out the equity from your residential property via refinancing. Then use the extra cash to pay down or even pay off the commercial mortgage. For this to benefit you, the amount saved should be more than the refinancing transaction costs.