Purchasing a home is perhaps the most important investment of a person and, at the same time, the biggest burden, unless you pay in cash. Not paying in cash means that you have to take a mortgage that you’ll have to pay in equal monthly instalments and this can take you a maximum of 30 years to entirely pay it off. But if you do not want to wait this long before you can completely own a home, you can simply make it shorter by paying more than what you’re required to pay monthly. How is this possible? Here are some ways:
1. Check the payment terms
There are several types of payment terms, but which of them is ideal for you based on your current financial situation? It is true that the shorter the payment period, the more money you’ll be saving. However, this may not be applicable to all borrowers because this is dependent on an individual’s capacity to pay. If you can afford a 10-year term, well and good, but if not, you may settle for a longer payment term. It is important that you try to evaluate your finances first before deciding what term to take.
2. Paying more means shorter payment term
Let’s say for instance, you have a mortgage that amounts to $200,000 with 5% interest, payable in 30 years, and with a monthly instalment of $1,000. To shorten the years of payment, you may opt to pay, let’s say, $1,500 instead of only $1,000. This will not only reduce the years of payment, but it can also make a difference in your monthly interest. This means that a bigger amount will be deducted from the principal. Paying more monthly can take away years of your payment period, and this will allow you to take possession of the property much quicker.
3. Design a payment schedule
Most of us are used to a mortgage that requires us to pay on a monthly basis in equal monthly instalments, but there are already mortgage providers that allow you to pay twice a month. This payment schedule can definitely shorten your payment term by half provided that your income can afford this kind of schedule.
4. Know the terms and conditions of the loan provider
Loan providers follow different rules when it comes to settlement of loans or mortgages. In case of additional payments, there are providers that directly deduct them from the principal amount of your mortgage while others credit them to your next scheduled payment. In such instances, the former arrangement is much better to consider.