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Buying a home is probably the best investment you will ever make. That's because you
can pay off your mortgage and build equity in your home over time. Renters on the other hand will
continue to pay rent and will likely see their rent payments increase significantly as time goes by.
From the moment you make that first mortgage payment, you will probably be dreaming of the
day when you can make your last one and be "mortgage-free." For most people that day is pretty far off
in the future, but it is possible to speed up the process.
Your REALTOR® will be able to advise you on ways you can pay down your
mortgage as quickly as possible. This information will be helpful when you are arranging financing on
your home. Be sure to discuss various options with your financial institution before choosing a
mortgage.
Amortization schedule
One of the best ways to pay off your mortgage faster is to shorten the "amortization period." By
choosing a shorter amortization, you will not only pay for your home in less time, but you will make
substantial savings in interest too.
For example, the most common mortgage amortization is 25 years. By shortening that
period to 15 years, you will erode the amount of money you owe much more quickly and make fewer interest
payments. Shortening the amortization period is not for everyone as it does mean larger payments, but
for many people the benefit of long term savings is worth it.
Usually each mortgage payment is blended and applied to both the principal and interest so
at the beginning, the interest portion of the payment is extremely high. However, with each payment,
more and more of is applied to the principal. Ask your REALTOR® to give you examples of what
your payments would be at the current interest rate amortized over 25 years as compared to 15 years.
Payment options
It used to be that most people made monthly mortgage payments, but weekly, bi-weekly and semi-monthly
payments are more popular today. With these types of payment options you will reduce the amount of
principal you owe faster because you make payments on a much more frequent basis and less interest is
accrued. Many mortgages also offer homeowners the option of making an additional payment each year or
increasing your payment each month. Making the equivalent of one extra payment a year can save you a
considerable amount over time.
Anniversary date
Many mortgages allow you to make a lump sum payment on the anniversary date of your mortgage. Again this
reduces the amount of money you pay interest on resulting in long term savings. It's wise to find out
what "pre-payment" privileges are available on the mortgage you choose.
Your REALTOR® along with either your bank, trust company or mortgage broker can
help you look at all the possibilities for financing your home and can tailor a mortgage that fits your
income and your goals.
Shop around
Look for a mortgage that has as much flexibility as possible. Be sure you can make at least one extra
payment a year and can choose the payment plan that works best for you. Your REALTOR® is
experienced and knowledgeable about the many mortgage options and the types of payment plans available and
can act as your guide to help you become mortgage free sooner.
This article is copyrighted to OREA.
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