3065: 10 Ways to Pay Off Your Mortgage Faster by Alexa Mason with The College Investor

[00:00:00] This is Optimal Living Daily, Episode 3065 10 Ways to Pay Off Your Mortgage Faster by Alexa Mason with The College Investor.com And I'm Justin Malik. This is the show where I usually read to you kind of like an audiobook, but on Sundays

[00:00:15] I share an episode from a different podcast in our Optimal Network and today's is coming from our second ever show Optimal Finance Daily with some ideas on how to pay off a mortgage faster. But if you don't have a mortgage, I thought this one was still useful.

[00:00:32] So with that let's get right to the bonus episode and Diana's commentary as we optimize your life. 10 Ways to Pay Off Your Mortgage Faster by Alexa Mason with The College Investor.com While we normally talk about student loans on this blog,

[00:00:52] there's another huge debt most of you will take on at some point in your life if you haven't already. That debt is a mortgage. Personal finance is very personal. Depending on who you ask, paying off a mortgage early could be a great move or financial suicide.

[00:01:09] It's very true that it's possible to earn more money by investing your extra cash rather than putting it towards a mortgage. It's also true that paying off your mortgage earns you a guaranteed rate of return plus the financial security that comes along with it.

[00:01:24] So should you plan to pay off your mortgage early? The answer to that depends solely on your individual personality and financial goals. If you're like me, hate paying monthly payments and despise all types of debt, then killing your mortgage is probably on your bucket list.

[00:01:41] If so, here are 10 ways to pay off your mortgage quicker. Before You Buy If you don't already own a home, there are a few things you should do before you buy. Following these steps can save you a boatload of cash in the long run. Number One

[00:01:57] Have a Good Credit Score In order to get the best interest rate on your mortgage, you need a good credit score, period. If you have a subpar credit score and you receive a high interest rate on your mortgage, you'll pay a whole lot more.

[00:02:11] For example, you take out a mortgage of $150,000 and get a 7% interest rate. Your monthly payment is $799. Over the course of 30 years, you pay a total of $287,411 for your house. Your friend with good credit takes out $150,000 mortgage and gets a 4% interest rate. Her monthly payment is $573.

[00:02:39] Over the course of 30 years, she pays a total of $206,243. You paid $81,168 more than your friend over the course of a 30-year mortgage. This makes it pretty easy to see why you need to have a good credit score before obtaining a mortgage.

[00:02:59] Work on your credit score before taking out a mortgage. Number Two Have at least a 20% down payment If you're getting a conventional loan to purchase a house and the loan to value ratio is greater than 80%, you'll be stuck paying PMI.

[00:03:16] PMI stands for Private Mortgage Insurance and protects the lender in the event you default on your loan. Putting at least 20% down not only reduces the future balance of the mortgage you'll be

[00:03:27] trying to pay off, but can also save you several hundred dollars per year in the form of PMI. Do your best to come up with at least 20% down. Number Three Shop Around

[00:03:39] If you have a great credit score and a nice down payment, you're in a good position to get a less expensive mortgage. Before you pull the trigger on purchasing a home, shop around. Figure out what you want and try to locate a deal if at all possible.

[00:03:53] Number Four Have an Emergency Fund First Last but not least, you need an emergency fund before you buy a home. As a homeowner, you never know what's going to go wrong. I recently bought a house and am extremely grateful for the cash I had set aside.

[00:04:08] Not long after purchasing the house, I had to get a new roof put on and now have to purchase a new fireplace insert before winter hits. Just those two things have cost me several thousand

[00:04:18] dollars. No house is perfect. Have cash set aside specifically for home repairs and put some money in an emergency fund for other inconveniences. Pay it down faster. If you're already a homeowner and can't wait for the day when you'll be mortgage free,

[00:04:34] here's some things you can do to pay off your mortgage faster. Number Five Make Bi-Weekly Payments Making bi-weekly payments can save you money if your mortgage interest is compounded daily. To go this route, simply make a payment on the 15th and 30th of each month.

[00:04:52] While this process will not exponentially speed up the mortgage payment process, it can knock a few payments off the lifetime of your loan, without you ever applying extra money. Not a bad deal.

[00:05:03] Before doing this, you do need to check with your mortgage provider to see if they accept early payments and how those are applied. Number Six Make One Extra Payment Per Year Again, making one extra payment per year won't help you pay off the mortgage in record time,

[00:05:19] but it will help you get there faster, especially if you start doing this from the very beginning. Number Seven Put Extra Cash Towards The Balance If you're super motivated to get your home paid off, then start putting all your extra cash

[00:05:33] towards the balance. If you have a mortgage company that allows you to make multiple payments per month, then start putting any extra cash towards the loan. I personally have my mortgage set up through my local bank where I can make payments online. I love being able to watch

[00:05:48] that balance drop even if only a little every time I make a payment. If you're wondering where to get cash, think about bonuses, cash gifts, tax refunds and side hustle money. Every little bit helps. Number Eight Set a Date and Work Backwards

[00:06:04] My goal is to have my mortgage paid off in eight years. I chose this goal because it's something that will stretch me but not make me too uncomfortable. I recommend that you start by using an online mortgage payoff calculator. The one linked in this post has options for

[00:06:18] one-time lump sum payments, annual one-time payments and monthly additional payments. Figure out when you'd like to have your mortgage paid off and from there you'll be able to calculate the additional payments you need to make each month or you can play around and see how much time

[00:06:33] adding different amounts of money will save you. Number Nine Be Careful When It Comes To Refinancing If you've got a mortgage with a high interest rate, it may make sense to refinance to a lower interest rate if your credit allows. However, this is not always true. If you're

[00:06:50] thinking of refinancing, work out the math first. When you refinance, you're going to incur closing costs. These can add up to several thousands of dollars and are sometimes much more expensive than sticking with your current mortgage. Number Ten Keep On, Keep It On

[00:07:07] Unless you're uber rich or found one heck of a deal in a house, paying off your mortgage is going to take time. Just stick with the plan, adjust when needed and remember, nothing great happens overnight. You just listened to the post titled

[00:07:23] Ten Ways To Pay Off Your Mortgage Faster by Alexa Mason with TheCollegeInvestor.com This article highlights the age-old question, should I invest or pay off my mortgage? This continues to be an ongoing debate because the answer is going to be unique

[00:07:40] to your preferences and circumstances. If the interest rate on your mortgage is less than 5%, you'll likely make a higher return on interest from investments than the money you would save an interest by aggressively paying off your mortgage. However, many people feel peace of mind

[00:07:57] by owning their home outright, especially if it's the home they plan to be in when they retire. I personally have chosen to not pay off my mortgage early for a number of reasons.

[00:08:07] Firstly, I don't look at my primary residence as an investment and I don't want my money held up in a tangible asset. I prefer the liquidity of stocks. The argument for peace of mind being

[00:08:19] mortgage-free doesn't appeal to me because my mortgage is $600 per month. So this is an expense that's easily met especially because I don't have a car payment or any other debt. If you have a high monthly mortgage, I can see the peace of mind of not having a mortgage

[00:08:34] being more attractive. I also don't know how long I'll live in this house, but I do plan to keep it and rent it out after I move on, so why not let the tenants pay the mortgage?

[00:08:44] I like the advice from my friend Frank Vasquez over at RISP Parity Radio who recommends to have no more than 10-20% of your net worth in your residence so that you can put the bulk of your money into income producing assets. This debate also makes me

[00:09:01] think of an optimal finance daily listener who reached out to me asking if I thought she had enough money to retire early. While she had over a million dollars, a large majority of that was

[00:09:12] in her house so she couldn't really live off that in retirement unless she sold the house. That should do it for another edition of Optimal Finance Daily. I'll be back tomorrow as usual so I'll see you there on the Wednesday show where your Optimal Life awaits.