Early Mortgage Payoff
If I told you there’s a surefire way to put tens of thousands of dollars in your pocket, it’s completely legal and just about anybody can do it, would you be interested? This may sound like a get rich quick pitch, but it’s not! It’s more like get rich slowly, by paying off your mortgage early. Today, Rob West explains the benefits of paying down your mortgage early and explains how to do it. When you consider the amount of interest you pay over the life of a 30-year mortgage, that should be all the incentive you need to pay off the loan as fast as possible. Let’s say you take out a $250,000 30-year mortgage at 4%. At the end of that term, you’ll have paid almost $150,000 in interest. That makes the true cost of the home closer to $400,000. However, suppose that with 25 years left on your 30-year mortgage, you begin paying an extra $200 a month against the principal. Those extra payments would shave five years of payments off your loan! FOUR STEPS TO PAYING OFF YOUR MORTGAGE EARLY: 1. CREATE A BUDGET: First, you need a spending plan. You can’t start accelerating the payoff of your mortgage until you’re living on a budget, spending less than you earn. For help in setting up your budget, check out the free MoneyWise app. It uses the tried and true envelope system to make budgeting easy. It will track your spending and reveal things you can cut out to free up more cash after paying your bills. 2. DETERMINE THE AMOUNT OF YOUR EXTRA PAYMENTS: The next step is to determine how much of that extra cash you’ll apply to your mortgage. You can even make it a budget category all by itself. You may start to feel deprived because you’ve cut out some of your fun spending. It helps to celebrate milestones along the way. A special dinner out, maybe, whenever you’ve paid off another $1,000 in mortgage principal. Just keep celebrating within the budget. 3. APPLY FOUND MONEY TO YOUR MORTGAGE: Next, consider applying any money that comes your way outside of your normal paycheck to your mortgage. Some call it found money or mad money. This could be a work bonus, freelance income, a cash gift from a family member, a tax refund, or earnings from a yard sale. Make a commitment to put that unexpected cash on your mortgage principal, as well as the surplus money from your budget. The trick is to apply that money to your mortgage principal as soon as you get it. Don’t let it sit around tempting you. If you haven’t set up an online account with your lender, do that now. Most lender websites now make it easy to apply extra payments to the principal just by clicking a button or two. 4. CUT THE FAT FROM YOUR BUDGET: You may think you don’t have a dime left over at the end of the month, but you really don’t know unless you’ve cut back everything you can. Here are a few suggestions: ●Cut your cable or satellite service and go with a streaming package. You can probably save $50 or $100 a month just by doing that. ●Look for free entertainment in your community. The library is a good source of information. ●Take a break from eating out. It’s the rare family that can’t save $100 a month by cooking meals at home. ●Try to go six months or a year without buying new clothes. That might save hundreds of dollars. LISTENER QUESTIONS: ●If you only have one beneficiary, do you still need to make out a will? ●What is the importance of updating a will? ●Who is and isn’t required to file a federal tax return? ●Is halting payments to arrange a debt settlement a good idea? ●Are long-term investment retirement policies worthwhile? RESOURCES MENTIONED DURING THIS PROGRAM: ●Christian Credit Counselors (Christian debt management) Remember, you can call in to ask your questions most days at (800) 525-7000 or email them to [email protected]. Also, visit our website at MoneyWise.org where you can connect with a MoneyWise Coach, join the MoneyWise Community, and even download the free MoneyWise app. Like and Follow us on Facebook at MoneyWise Media for videos and the very latest discussion! Remember that it’s your prayerful and financial support that keeps MoneyWise on the air. Help us continue this outreach by clicking the Donate tab on our website or in our app.