From Business Insider, Jessica Mai talks to Kalyn Brooke, an expert on reducing expenses, who offers some really great, practical (and achievable!) tips on how to pay off your mortgage faster! Many people don't take the plunge into homeownership because they're worried about committing to seemingly endless monthly payments. But in reality, beyond the interest rate, you are in control of your payments and how quickly you pay off your mortgage— not the bank! These are great tips on how to take control of your mortgage and pay it off even faster!
6 Ways to Pay Off Your Mortgage Faster
By: Jessica Mai
A mortgage is expensive.
Buying a home is one of — if not the — biggest expenses a person will ever have, says Kalyn Brooke in her book, "31 Days of Radically Reducing Your Expenses."
Brooke, founder of lifestyle site Creative Savings Blog, was content with making the minimum payments for her mortgage, but soon realized how much it was affecting the rest of the budget.
"My wake-up call happened the first time I really looked at that end-of-year mortgage statement in the mail and realized how much interest I was paying on top of my loan," she writes. "I promised myself right then and there that I would do whatever steps necessary to pay my mortgage off as quickly as possible."
Currently, Brooke and her husband are working towards paying off the mortgage on their first home in New York along with making payments to their new second home in Florida.
Here are six tips Brooke shares to help whittle down your payment:
1. Make one extra payment per year
This is perhaps one of the most beneficial steps you can take to help lower your mortgage payments, according to Brooke.
"Even if you don't do anything else, make just one extra principal payment every twelve months," Brooke writes. "Not only will you shave years off your loan, you'll also save thousands of dollars in interest."
If you don't have the cash on hand all at once, Brooke suggests talking to your bank to find alternatives to making a one-time payment, such as sending extra payments every two weeks to spread out the impact.
2. Knock out PMI
Private mortgage insurance (PMI) is an additional fee tacked onto your monthly payment to protect your lender if you don't make enough payments.
You only pay PMI if your down payment is less than 20% of your home cost, so if you're abiding by the traditional advice that recommends putting down that 20%, you should be in the clear.
However, if you put down less, you're probably paying this extra fee. If you're being charged PMI you should know it, but you can also reach out to the holder of your loan to find out how much it costs.
Brooke suggests making extra payments to get 20% equity in your home and eliminate your PMI to pay less on your mortgage every month.
"However, don't expect banks to keep track of this for you — I've heard stories of homeowners paying more PMI than they had to because they didn't stay on top of it," Brooke write in her book. "So keep track, and call your bank when you reach that 20% equity mark."
3. Consider refinancing
Refinancing your mortgage means getting a new loan to pay off your old mortgage at a lower interest rate, and Brooke suggests doing so when interest rates are low.
However, to refinance a home you have to go through a round of closing costs, which is a collection of administrative fees required to process the new loan. It could be a few thousand dollars upfront, but "depending on how long you stay in the home it could be worth the upfront cost," Brooke writes.
4. Have your property reassessed
Property taxes fluctuate with the market, so if the current rate is lower than when you moved in, you could end up with a lower monthly payment as well.
"For those of us who have taxes included in our mortgage (also known as escrow account), there's a good chance you can lower your monthly payment just by having it reassessed," Brooke writes.
To get an assessment, Brooke suggests first contacting a realtor to find comparable properties on the houses in your area and comparing the numbers to your home, rather than going to a private company where they might charge a fee.
"If the current value [of your home] is significantly lower [than when you got your mortgage], call your tax assessor and have them send you a form to fill out with your findings," Brooke writes. "The office will then determine whether or not your home is worth reevaluating."
Brooke does mention that this option is a little bit of a gamble since it changes with the housing and real estate markets, but it's "definitely worth researching."
5. File for property tax exemption
Some states offer tax exemption or credit on property taxes for residents. However, it depends on which state you live in, how long you've lived in the property, and your personal situation.
Because potential exemptions are highly specific and subject to change over time, Brooke suggests calling your local tax commissioner or doing a quick Google to see if you're eligible.
It varies from state to state, but property tax exemptions are more likely if you are over 65, disabled, or a veteran (in fact, Veterans Network United has a full list of veteran tax exemptions by state).
6. Downgrade to a smaller property
"A smaller home could mean a smaller mortgage payment, lower utilities, and less property taxes all around, so it's definitely worth considering if you don't need as much space," Brooke writes.
She also suggests looking into alternative home options such as RVs, mobile homes, and trailers.
Along with making extra payments and eliminating taxes, Brooke also suggests analyzing your monthly purchases and eliminating anything you don't need in order to free up more money for your payments.
"Remember, when you commit to reducing debt, especially something as big as a mortgage, you must sacrifice some things in order to save," she writes. "It's not always fun, but think of how much you'll be able to put towards that mortgage if you save every possible penny!"
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