Tips For Home Buyers Charleston SC: Paying Your Mortgage Off Early
Whether you are looking to buy your first house or your next house, here are some tips for home buyers Charleston SC that will help you pay off your mortgage earlier.
Either way, here is a simple strategy to help you pay the mortgage off years earlier and save tens of thousands in interest.
You may have heard of bi-weekly mortgages. You can actually have your mortgage set up to be paid twice a month.
Even if you do not have a bi-weekly mortgage, you can still apply the strategy.
Basically, either way, you break your monthly payment into 2 payments. You still pay the same monthly payment overall, it is just split into 2 half payments.
The reasoning behind this strategy is that normally, you would make 12 mortgage payments in a year.
However, there are 52 weeks in a year. If you make a payment every other week, that is 26 half payments which add up to 13 payments in a year.
This extra payment helps reduce your mortgage because you are making an extra mortgage payment each year.
That theory sounds good on the surface, but I believe it is flawed. First, it takes discipline to stick to the payment schedule. Second, what happens if you have a bad month financially?
I know we are supposed to have an “emergency fund” stashed just in case, but realistically, most Americans don’t have the emergency savings (and that is a whole different topic for another day).
Another flaw is that simply making an extra mortgage payment can help, but by itself it isn’t as effective as it can be.
Fortunately, there is an easy way to accomplish paying down your mortgage faster.
This is especially good to do around this time of year–tax season. Chances are, if you own a home, you will receive a refund.
First, when you write the check to the lender, make sure you note the check number. It is also critical that in the memo line you write “to be applied to principle only”.
You also want the check amount to be different than what your monthly payment is.
It doesn’t matter if it is more or less than your monthly payment, as long as it is not the same. If your monthly payment is $1400, then write the check for $1300, $1385, $1500, $1641, whatever.
The reason why you do these extra steps is because you will want to follow up with the bank in a few weeks to verify that 1) they received the check and 2) they applied the full amount to your principle balance (and not interest).
By noting the check number and making the check for a different amount, it is easier to track it. Plus, the note you wrote on the memo line shows them that the check is a principle payment.
Paying around tax season makes sense because you will likely have a refund. This can also work if you anticipate a bonus at work.
The main takeaway is if you make an extra payment, make sure you are applying it to your principle only.
Do not simply make an extra mortgage payment because you will not benefit nearly as much. This is a much easier strategy than bi-weekly payments.
The good thing is you only need to make 1 extra payment each year. Could you make more? Sure, that will pay it down faster. However, you can make tremendous progress just making 1 extra principle payment each year.
Of course, home owners do not typically stay in their homes for 30 years. The average has been about 7 years. So, the argument could be made whether or not to pay down your mortgage–but that is a whole different conversation.
If you are looking at buying a house, whether it is your first or your latest, then be sure to check out my home buyer tips Charleston SC on my Pam Marshall Realtor website.
For more home buyer tips Charleston SC, simply complete the form below and you can download a copy of my Winter 2014/15 Home Buyers Guide.