Pay off your mortgage faster
If you own a house, you probably have a 30 year mortgage. And to pay off a house in 30 years is a big, big drag. In this video I’m going to show you some brilliant ideas and hacks to pay your mortgage earlier than 30 years. Cut down two years, cut down five years, maybe even cut down ten years off your mortgage. That’s a lot of cutback. Not only will you not have to pay any mortgage payments, but you may reduce your payments significantly. So stay tuned.
1.) The first easiest way to cut back on your mortgage payment and your mortgage time from 30 years to pay extra principle every month. If you have $50 a month, or $100 a month,or $200 a month or any amount that you can pay extra, send it with your mortgage payment. Make a note that the extra payment goes towards your principle and this will save you quite a bit. But if you want a systematic way of paying extra principle every month, here’s an easy trick. Take your mortgage payment, let’s say it’s $3000 a month. Divide that by $250. So every month that you send a check of $3,000, add $250 to it. So $3,250 a month. Make a note that the extra $250 goes towards your principle. This way you are making 13 payments a year instead of twelve. And just by doing this you can knock out anywhere from three to five years from 30 years just by doing a simple trick like that.
2.) The second hack to pay off your mortgage faster and with less interest is the easiest one and the most important one because it does not cost you an extra dime to save up to four to six years on your mortgage payments. And what is that trick? In fact, I have a lot of clients that have recommended this system to I’ve used it myself if thebanks allow it my current bank does not allow it after I refinance about seven years ago. But check with your bank and what you can do is instead of paying your monthly mortgage, let’s say you’re paying on the 1st or the 15th or the 30th, whatever the date is, start making those mortgage payments biweekly.
So in the earlier example, if your payment is $3000 a month and let’s say you pay on the 15th, one thing you can do is you can start paying it on the first. But going back to the $3,000 a month payment, divide that by two so which is $1500 a month. So now pay $1500 on the first as an example, and pay the other one on the 15th which becomes biweekly payments. So in a sense, at the end of the year you will technically make a lot more payments than twelve payments. And because you are sending principle every month, that $1,500 has some principle in it. Because you are paying it 15 days early over the years, you save a lot of interest on that portions of that principle. So your interest gets lower and lower every month, so in time, you cannot see it. But over the 10, 20 years that you made payments, you can easily knock out additional four to six years.
So if you make biweekly payments, if you pay extra payments, you can knock out way more than five or six years from your payments. Very, very easy hack and very easy to do. I’ve done it myself, and I know a lot of my friends and past clients are doing that. Of course, check with your bank or your lender and your accountant what is the best way for you to hack those interest payments. Because believe me, I don’t like those interest payments myself. And they keep coming up every month and they’re like pain in the you know what.
The other thing you can do is, let’s say you cannot make extra payments every month, or extra principle every month because you are tight as it is. And believe me, most of the homes that I’ve sold, even when I bought my house 20 years ago, actually 25 years ago, my payment was only $600. And I was wondering, where the heck am I going to get $600 a month payment, let alone paying $100-$200 extra? So if you cannot do anything else, pay one or two or three payments per year extra, or even one payment per year. And that goes a long way, because over 30 years, if you start making those extra payments, you save a lot of interest on those extra principle that you make. So you may still save two or three or four years, but just that one extra payment can go a long, long way. So hope you can do that.
Buying a house is one of the biggest investment one makes in their lifetime. It’s a lot of money. In California, where I’m in Orange County, the medium homeprice of a house is a million dollars, which is a lot of money to buy in a house in Orange County. The medium home price in the USA is right around $400,000, maybe $430,000. It changes in the last few months, they’ve changed.
But even with that much mortgage payment, and depending on how much down payment you make and when you buy, the interest rate affects your payment. If you would have bought a house in January 2022, the rates were 3% and 4%. But if you buy that same house today, December 2022, your payments are double because the rates are 7%. Of course, they have dropped to 6%, 6.6%. But in November, they were like 7.25%.
So let’s say you had to move. You had a relocation, you had to move, or you had to move closer to your work, whatever the reason, and you paid the 6% or six and a half percent or even 7.5% interest rate. One way to reduce your payments, not only to cut back on your interest rate, but cut back on your years, is obviously to refinance to a lower mortgage interest rate payment. So if you have a rate of 7.5% right now for 30 years, and you just bought, you could refinance to a 15 year payment that will drop your interest rate by quite a bit, but it will increase your payment significantly. So that may not be a good idea. But when the rates drop, let’s say in June 2023 or December 2023, and I pray that the rates drop to 5%, you may want to refinance so that your payment will change by $500, $800, depending on your loan terms. So, yes, you will start the clock again for 30 years. But by reducing your payments, you feel comfortable living at any time of the year in the next four or five years, after you refinance and you have extra money left, you get a refund or you get part time job in the weekend, you Uber drive. You can earn extra $100, $200, $400 a month and pay off that mortgage. So even by refinancing, you adding two more years.
Let’s say you bought a house two years ago, and now you refinance. So your clock starts again for 30 years. But in the next coming years, if you start paying extra, if you start paying biweekly, if you have a lump sum money that you got from your inheritance or your tax refund or whatever, a bonus, pay off to those principles. So that 30 year mortgage that you’re starting now, you can pay it off in five years earlier or even ten years earlier. So refinance is an option. But again, talk to your accountant and your bank to see what’s best for you at that given time. Hopefully that helps.
3.) Let’s look at some more hacks to pay off your loan faster and sooner by paying less. Another simple way to cut your interest payment over the life of your loan is to recast your mortgage.
I won’t talk in detail about recasting your mortgage because I’m not a lender. So I would recommend that you talk to your lender. But basically when you have, let’s say you come up with some extra money, a large sum of money, and you want to pay off a big chunk of that payment to the bank as principle. So once you do that, you can request the bank to reamortize your loan. So this way it cuts back on your monthly payments, but it will not change the terms of your loan. Again, this is a great way to reduce your payments. I won’t talk into details, consult your lender, but it’s a great way to do it.
And those who can afford to do it or have money to pay off and recast, they do do it all the time. Back in the 2006, 2007, 2008, 2009, and 2010, there were a lot of loan modifications because a lot of the people lost jobs, the home values dropped anywhere from 20% to 40% to 50% and economy was not very well. There was a big, big recession. So there was a lot of loan modifications. So even now, if you have some kind of medical emergency or you could not pay your mortgage and you can prove to the bank that you have hardship in paying the mortgage payment, but you do have a job and you do want to keep the house, then you can talk to your bank. And if the bank is willing to do that, you can do loan modification on your loan terms.
Usually what they do, what happened in 2008 on the loan modification was if your rate was 7%, or if it was a variable rate where it jumped from 2% to 7% in three years. Heck, that was one of the reasons we got into recession, because of very toxic loans. Then what the banks did was instead of charging them 7%, which increased the payment by almost double or triple, the banks renegotiated with that homeowner who was in trouble, could not make the payments, and they adjusted the loan to 3% or 4% or they gave him a 40 year term until ten years, and then they can refinance again. So there was ways to reduce the payments. If you had some kind of hardship back then,the hardship had to be a medical hardship or a financial hardship if you lost the job and you could not make the payments. Similarly, if you’re in that situation right now, and of course we’re not in a big recession like in 2008, you could talk to your bank, explain to them your situation, prove to them the situation,and they may modify your loan. And that’s one way to do it. And it will not cost you anything at all, or it should not cost you anything, but if it cost you a few thousand dollars to remedy your loan or reduce your payments or your interest rates, it may be worth paying something up front again.
Talk to your accountant. But loan modification is a good way to do it. It has been around for a long time and it will be around for a long, long time because you never know, people get into trouble. I have a friend who just had a terrible accident and he was the primary income earner in the family. He cannot work anymore. So now you have mortgages due. The wife just started part time job making $1500 a month part time because they have kids. So that’s a financial hardship.
Not only that, it’s also a medical hardship because my client cannot work at least for another six, seven months or maybe a year, because that was a pretty bad accident. So you never know when things come up. So when it does come up, these ideas to reduce your payments or pay off your mortgage faster may help. I’ve sold a lot of homes and one of the biggest struggle of homeowners is, and including myself, like I said, when I bought my house, I could barely make the payments because we want to buy the house and most of the buyers right now barely qualify for homes.
Of course, there are a lot of people who pay cash and they have a lot of money, but on average, I would say more than 90% barely make payments or struggle to make the payments. So, one of the ways to reduce your mortgage payments if you have other debts with higher mortgage rates. Let’s say you have big credit cards and you’re paying 15%, 16% 17%. Pay off those first. Don’t make extra payment on your homes, try to pay off those credit cards. Or if you have a car payment, a used car that you bought and they’re charging you 7% interest rate, pay off those high mortgage debt first. Maybe it’ll take you two years, three years to pay them off first. Once you paid off with those high mortgages and let’s say your car payment was $400 a month, which you don’t have to make any more now you can take that $400, which you are paying anyways, and pay those towards your house mortgage payments and start reducing your mortgage payments doing that. So a good way is to payoff your high interest rate debts first. Once those are done and you start saving interest because you don’t have those debts, start paying extra on your home mortgage and that will start your clock to pay off your interest rate sooner and faster.
4.) The other way to cut back on your payments, of course not a great idea, but if you have to, you could is downsize.
Let’s say you have a big house, four bedrooms, three bath house, and your kids are in college and they’re done with school or college and you don’t need the four bedrooms. Get a smaller house, three bedrooms or even a two bedroom condo, if it’s okay with you. And if you have a big payment on that four bedroom house. Sell it, use that equity, put all of that equity into a smaller house and get a smaller mortgage because you’re going to put a lot of equity, hopefully you had a lot of equity.
So when you sell the house, you use all the equity to pay your smaller house. And now you’ve reduced your payment. Not only that, but your maintenance will be low, your utilities will be low, everything downsizes. That’s one way to save.
Of course, that’s your last resort. But if you have to do it again, emergencies, financial situations or financial emergency, if that’s what you have to do, that’s what you have to do. In fact, I’ve helped a couple of my clients actually downsize because they had to. Luckily it worked out. Luckily they got 3% interest rate, not the 7% we have right now. They’re happy because they’re not stressed out working to just paying their mortgage rate. So hope this helped.