Owning a home is one of the greatest goals you can achieve. You can add it as your asset or even use it as a source of income by renting it out. However, if you buy a home with a mortgage, monthly payments can be excruciating. This is especially true when you only have one source of income.
On the other hand, fully paying your mortgage will allow you to have more financial freedom because mortgage payments are one of the most expensive bills you can pay. If you want to pay your mortgage earlier or save money while paying it off, you may want to follow these tips:
1. Refinancing
When mortgage rates fall, you may want to refinance your loan. Refinancing means you’re making a new loan to pay off your old mortgage, thereby having a new balance. It’s a good idea to refinance your loan because you can save money if you find a new mortgage loan with a lower interest rate.
If the new interest rate is lower by 50–75%, then your monthly mortgage payment is also lower than your old mortgage payment. You can also opt to make your loan term shorter by refinancing. By doing so, you can save yourself from interest rates.
Moreover, you can also refinance to remove your private mortgage insurance, especially if you already have 20% home equity. To get the best refinancing option, click to see more options from a reputable lender.
2. Utilizing Home Equity
Not only does home equity is a good factor that makes refinancing a good option, but utilizing it can also help you save money. Home equity means the portion you own on your property, which is usually the percentage of your home you’ve paid. For instance, if you have paid a 20% down payment on a mortgage loan amounting to £300,000 GBP, then your home equity is £60,000.
The remaining balance of £240,000, which you’re paying through a mortgage, still belongs to the lender. Although the property is in your name, home equity depends on how much you’ve paid for the house. Until you haven’t paid off your balance, your home equity will remain 20% unless your home value has increased.
When your home value has appreciated, your home equity will also increase. For instance, if your £300,000 home increased to £600,000, then your home equity becomes 40%. Since you have earned from your home equity, you can pay off some of your mortgage balance. You can either do the following to take equity out of your home:
- Cash-out Refinance: This is similar to refinancing your mortgage, but the new loan is higher than your remaining mortgage balance. You can withdraw the extra cash to pay off some of your mortgage balance. That way, you can save months of paying your mortgage loan.
- Home Equity Loan: It’s a second mortgage that allows you to borrow from your home’s value less your outstanding mortgage. For instance, if your property value is £600,000 and your remaining balance is £240,000, your home equity loan can amount to £360,000.
3. Paying Bi-Weekly
Another way to save while paying your mortgage is to make bi-weekly payments. You can also pay your mortgage faster when you do it twice a month by halves. Although there may be no difference at first, you may be making an extra payment each year.
Since a year consists of 52 weeks and you’re making 26 total payments with a bi-weekly scheme, you’re making a total of 13 full monthly payments. That means you’re making an extra full monthly payment in a year. As a result, you can pay your mortgage earlier than the loan term, which can save you from years of paying extra interest.
Conclusion
If your home is where you’ll be staying permanently or for at least a couple of decades, then refinancing your loan may be the right choice. You may also use your home equity to pay some of your monthly mortgage payment. Bi-weekly payments can also help you pay more months to shorten your loan term. Using all these tips can help you save from paying interest.
