You’ve finally purchased the perfect mid-century modern home with a backyard spacious enough to entertain your family and friends. And you even got a current mortgage with a fantastic 30-year fixed rate. Good game!
So you can sit back and relax for three decades, right? As long as you budget each month for that mortgage payment – for the next 360 months – you’re good to go.
Or maybe it’s now exact good time to set long-term mortgage goals.
“I used to tell homeowners that a mortgage isn’t like fine wine: it doesn’t get better with age,” says Andrina Valdes, COO of Cornerstone Home Lending. “If you don’t set goals for your mortgage and you regularly check in with your loan officer to determine how you can achieve those goals, chances are you’ll pay more over the life of your mortgage than you need of.”
Just as every homeowner is unique, so are your mortgage goals. And setting a long-term goal may be the best financial decision you’ve made since buying that home.
Pay off your mortgage faster
You may have just gotten your loan and moved into your new home, but you may already be planning how you can get rid of those monthly mortgage payments. Paying off your mortgage early can provide financial stability and help you save money in the long run because you’ll accrue less interest.
“Bi-weekly payments on a 30-year mortgage will allow you to pay off the house seven years earlier,” says the New York company Ralph DiBugnaraPresident of Home Qualified and Senior Vice President of Cardinal Financial.
First, check to see if your lender charges a prepayment penalty. If not, there are several ways to pay off your mortgage faster:
- Make payments every two weeks instead of monthly mortgage payments.
- Round up your mortgage payments. The amounts may be small, but they will make a difference.
- Send windfall income to the mortgage company to pay off your loan.
Save money on your mortgage
It’s nice to finally own your own home, but it’s not so nice to have that huge mortgage hanging over your head. So if you want to save money on your mortgage, a few strategies can help lower the overall cost.
- Refinance your mortgage. It may seem like it’s too early to think about it, but locking in an even lower interest rate or changing the terms of your loan can help you save a lot of money in the long run.
- Make an additional payment each year. For example, just one additional annual payment on a $250,000 loan with an interest rate of 3.75% could result in the loan balance being paid off two years earlier and saving thousands of dollars in mortgage fees. ‘interest.
- Try to end your private mortgage insurance, or PMI, early by making additional payments. For example, if you put less than 20% down payment, you will pay PMI until you reach the 20% equity threshold. To reach this threshold sooner, make more monthly payments.
Extend mortgage payment deadline
Maybe you overestimated your ability to make higher monthly payments with a shorter mortgage term. It is possible for those who signed a 15-year mortgage to switch to a 30-year mortgage. There are, of course, pros and cons to both.
Extending the term will result in much smaller monthly payments, but it will also mean more interest accrued over the extended period. But adjusting the term of your mortgage may make more sense if you’re juggling high-interest debt, trying to pay off multiple loans, or not keeping up with your overall monthly bills.
“Increasing your payment term with refinancing can help people save more on monthly payments,” says Anthony Martin, founder and CEO of Choice Mutual in Reno, NV. “It may not always be ideal since you’ll end up paying more overall, but it can help people make room in their budget for other essentials.”
Use the money for investments
Maybe your personal mortgage goal has nothing to do with paying off your mortgage faster or saving money. Instead, you might have the option of investing in something with a guaranteed higher return, or you want to use the money for home improvements.
Depending on how long you’ve owned the home, you could be sitting on a lot of capital. You can tap into that equity by refinancing or taking out a home equity loan.
“With the high annual percentage rates associated with credit cards and the less than ideal terms that come with many personal loans, refinancing may be the cheapest way to access a large sum of money using the value equity in your home without having to pay huge interest,” says Alexandra Rodriguez-Howelldirector of Silverton Mortgage in Atlanta.
Some homeowners may also use the money from the refinance to pay off higher-interest debt, such as a credit card, medical bills, or even a child’s college tuition.
Another plus? Paying off a mortgage can help homeowners realize a greater tax advantage by canceling mortgage interest compared to interest on credit card debt.
Do not do anything
Sometimes the best thing an owner can do is nothing. You’ve already locked in an incredibly low interest rate on a 30-year fixed mortgage that you’re comfortable paying off at your own pace.
In this case, your mortgage goal is to write those checks each month. By not refinancing, you can reassure yourself of avoiding restarting the amortization schedule and extending your debt horizon into the distant future.
And don’t forget that mortgage interest is one of the many tax breaks available to homeowners.