The hardest part about a mortgage may not necessarily be the application process. There are indeed quite a few steps that need to be taken in order to even get the mortgage. But paying the money back to the lender over the term of the mortgage can end up being tedious and if the borrower loses his or her source of income, it can be pretty hard to do. While most people will simply pay the minimum on their mortgage each month, just as the company requests, there are many other mortgage repayment options. By making a plan early on, the borrower can get the mortgage paid of much more quickly.
Monthly Payments
The minimum that is expected by the lender will usually have the borrower paying on their loan for 15 or 30 years. Every month the homeowner writes a check for the amount shown on the coupon. If this route is taken, many thousands of dollars will be spent on interest charges alone (at 5.25% interest the total paid back to the lender will be nearly double the amount initially borrowed). The easiest way to avoid paying some of this interest is to simply add to the payments each month. Even just $25 extra each month will knock years off the loan, and save thousands of dollars in interest charges. Use a calculator to figure out just how much you will save.
Bi-Weekly Payments
Most lenders will allow the borrower to make bi-weekly payments. The borrower will then switch from paying the full amount due each month, to half the amount due every two weeks. Since the year has 52 weeks, this results in 26 half payments, or 13 full payments. That is to say that each year the borrower will be making the equivalent of 1 additional mortgage payment each year. The Primerates calculator can easily show how many years sooner the mortgage will be paid off, and how much less interest will be spent.
Balloon Mortgage
There are some types of financing that call for a large sum of cash due at the end of the term. While these are not common, they can be useful in certain situations. The balloon mortgages will allow the borrower to pay a smaller amount for the first several years, and then pay the full amount left on the loan at the end of the term (usually 5 or 7 years). These loans act much like an ARM, but rather than increasing the interest rate, the remainder of the loan must be repaid. Most people would not benefit from a balloon mortgage, and should be used with caution.
The easiest way to pay off the mortgage is to set up automatic withdrawals for the full amount each month. Most lenders will allow the borrower to set the automatic deduction up for any amount they choose, so paying additional premium is not too difficult. Making other arrangements can help the borrower get out of debt sooner, but there are times when a person will want to have the interest payments around for tax purposes. The bottom line is that if you are going to use one of these mortgage repayment options to pay off your loan early, make sure you are not doing it by sacrificing savings and retirement. Fully funding retirement is, in the long run, much more important.
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