3 Tips to Pay Your Home Off Quicker

Hi everyone! With the new year, i wanted to share some tips on how to pay off your home quicker. Before i get started, I should say that no, my home is not free and clear. BUT, I do have a lot of experience with mortgages and helping others with their finances. I have been in the finance industry for the past 7 years and really found a love for crunching numbers. I am a licensed Loan Partner in one of the busiest housing markets in the country and certainly had my share of closing home loans.

Through these experiences I have picked up on a few tips I want to share. Hopefully they will help with either paying your home loan quicker, or assist while you are shopping for your first mortgage.

#1 Purchase a Modest Home

The first start to paying your home off quickly is to purchase within your means. Most loan programs allow your debt-to-income ratio to be around 45%-50%. This means, if your monthly gross salary is $4,000, your payment could be $2,000 (and all other credit liabilities under this amount). If you max out this ratio, it really doesn't leave a lot extra of other expenses.

That being said, be sure to ask your lender what payments will look like before you start looking at homes near your max pre-approval amount. I think it is safe to say that we all want a dream home but always remember if the features are wants vs. needs. You may be pre-approved for a high amount, but actually cannot afford those payments.

TIP: Be sure to ask your lender what payments will look like before you start shopping!

#2 Refinance a Shorter Term, but Be Cautious

One of the easiest ways to pay your home off quicker is to refinance it to a shorter term. Most standard loans are 30 years, however usually after 6 months of owning a home, you can look at a refinance. There are times when a refinance into another 30-year loan makes sense, however for the purpose of trying to pay a home off quickly, I would recommend looking at a 20 or 15 year loan.

When you are looking at refinancing, be cautious of fees associated with the transaction. No one works for free, which is totally OK! Just be sure to ask your lender how quickly you will pay yourself back the fees. Not only will you pay your home off quicker, but you will also save money! For example, if your loan is $200,000 (with a 4.5% rate), your total interest paid will be around $165,000 (JUST INTEREST!). With the same loan and rate (even though rates should be less for shorter terms), your interest for a 15 year loan would be about $75,000, saving almost a $100,000!

TIP: Ask your lender how many months it will take to pay back the fees associated with the refinance.

#3 Add Extra Principal Payments

If the payments for a shorter term are too high for your monthly expenses, I recommend just adding a little extra each month, as this will really add up!

Even if you just round to the nearest 100th dollar, this can also drop the interest and time off of the loan. Did you know, that if you just add one extra principal+interest payment per year, you will shave 7 years off the life of the loan? SO EASY! For your $200,000 mortgage (4.5% rate) , that is only about $1,000 extra each year ($83/ month).

TIP: Round your payment to the nearest 100th dollar.

These are just a few things to think about before looking to purchase or if you already own a home, use them to pay off your home quicker. As I mentioned before, my home is not currently paid off, but I have seen these tips help in my own finances and help in many others.

Best of luck and Happy New Year!!

-Tabitha Joy