Don’t Read Too Much into the Days-on-market StatDecember 16, 2019
With the expected frenzy around settling in a new home, you may forget about the all-important mortgage payment. Not making timely mortgage payments can adversely affect your credit score and compromise the refinancing of your loan. So once you have made the first payment, ensure confirming it with your lender and set up an auto-debit (to forget about the need to remember).
If like many of your ilk, you aspire to free yourself of mortgage obligations, an easy way to do so is to pay off your mortgage faster. Let me quickly take you through what needs to be done.
Make extra payments
Make an extra payment each month. Of course, you need to confirm that there are no pre-payment penalties attached to them. When you make an extra payment, more money each successive month is used in clearing the principal balance. Another thing, unless you specify, the extra payment may be compensated against your next month’s mortgage due. So, give clear instructions that you want the extra payment to be set off against your principal balance.
Make bi-weekly payments
When you opt for a bi-weekly payment, your good work sees off one extra month’s payment each year, so that by the time you make 12 mortgage payments, the effect is that of making 13. No debt is good debt (let economists argue otherwise). Squaring off your 30-year debt in 25.8 years by following bi-weekly mortgage payment can’t really be a bad bet? Make sure you have the protocols of bi-weekly payment sorted with your mortgage company. The last thing you want is to pay a fee on such payment, thereby de-validating its main premise- saving money for you.
Make a big payment (soon as you can)
Say, you get an inheritance or a windfall. Just go ahead and make a big lump sum payment. What it does is impact your remaining principal balance positively and help you get over your mortgage liability much sooner. Alternatively, you can ask your lender to ‘recast’ the loan, thus bringing down your monthly mortgage dues (given that your principal is comprehensively reduced after the lump sum payment).
Keep your mortgage rate under constant scrutiny
Keep monitoring your mortgage rates. This way, you can seize any decent opportunity to refinance. You can also benefit from lower rates that are available from time to time, thereby decreasing your loan tenure, if you can just keep making the same mortgage payments even after the rates are reduced.
Get yourself a shorter-term refinance loan
Rather than opting for a 30-Year fixed mortgage, go for a 20-Year or a 15-year mortgage. Stretch it to 10-Year. Even better! If you can take care of the monthly due, there is no need to be in debt for 30 years (remember, no debt is good debt, even if you are a blue-chip company buying back stock through debt). Just pay your mortgage in half the time and move over. There can be the added advantage of lower interest rates that usually accompany short-term loans.