Take Charge of Your Mortgage

You’ve taken the leap and decided to buy a home. After signing a mountain of paperwork, you are now the proud owner of your own residence. When the first mortgage payment comes due, you are hit by the reality of what you have done. You have taken on 30 years’ worth of massive payments, in an economy that makes no promises about long-term job stability.

An aggressive plan for mortgage prepayment can help reduce this long-term commitment and save you money.

Plan Before You Buy
Look before you leap and do the math in advance, to determine how much house you can afford to buy, then buy less house than you can afford. This strategy will ensure that you have adequate cash flow to make extra mortgage payments and will provide some cushion, should you have to take a lower-paying job at some point in the future. Also, make sure that your mortgage does not impose a penalty for prepayment. This clause can put a damper on your efforts to get out of debt.

Next, you need to pay attention to the financing terms. While adjustable-rate mortgages offer lower initial payments, they are used all too often to enable buyers to get into homes they cannot actually afford. If your plan is to get out of debt as quickly as possible, a fixed-rate mortgage provides the predictability of a steady interest rate, and it can always be refinanced if rates fall.

How to Pay Off a Mortgage 
Once you have a mortgage, the key to paying it off is simple: send money to the bank. Set aside some cash and make at least one extra payment on your mortgage per year or each month add a set amount that you can comfortably afford (say $15 or $25) to your payment. Another idea, apply the next tax refund towards your mortgage principal.

If your career advances over the years, put those raises and bonuses to work by sending them to the mortgage company. You were doing just fine without that money, and you won’t miss it if you don’t get used to having it in your budget.

Keep an eye on interest rates and, if they fall, consider refinancing. If you can reduce your interest rate, shorten the term of your loan or both, refinancing can be an excellent strategy. Just don’t make the mistake of keeping your term the same and taking money out.

The Bottom Line
There’s no time like the present to begin your quest to pay off that mortgage. Start by reading your amortization schedule; once you see exactly how much of your monthly payment goes to interest, and what a tiny portion goes toward paying off the principal, you will realize that every extra dollar you send, reduces the portion of your payment that services your interest expense. That can be a powerful motivator, for financially savvy individuals.

If you focus your efforts on the task at hand, you may be surprised at how quickly you can retire a mortgage. With your mission accomplished, you will find that the comforts of home are even more pleasurable when it is you, not the bank, who owns the home.