Stock investment – 2 Simple Ways to Pay Off Your Mortgage Faster — The Motley Fool



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A mortgage payment is the average homeowner’s single biggest monthly expense, especially considering that banks will lend up to 43% of your income with a mortgage loan. Clearly, taking action to reduce mortgage costs can have a big effect on the amount of cash left in your bank account at the end of each month.

In the video segment below, Motley Fool analysts Kristine Harjes and Nathan Hamilton talk about two mortgage savings tips that could help you pay down your mortgage faster.

Kristine Harjes: When it comes to paying down your mortgage, the faster you can do it, the better. Today we want to share with you two ways that you can make sure to pay off your mortgage faster.

Nathan Hamilton: The first one is looking at our 5% plan, and it may be something that you’re familiar with, or have seen before, but automatically saving, say, 5% of your income and putting it into a separate account, and adding that on top of your regular mortgage payment. What you can do over time to possibly increase it is, say, every month, increase it by 1%; next month, by another percent, until your finances break and you say, “OK, I need to stop paying down as much of my mortgage. I’m still automatically saving, but maybe 8% is what I can afford to do. That’s what works for my finances.”

Harjes: What do you mean by finances “breaking”?


Hamilton: Essentially if you’re not able to pay your other bills, if you’re not able to save and invest in the market for retirement, if you have, say, a car payment coming up, if you have a down payment on a car, a loan, any sort of regular, everyday financial need.

Harjes: Of course, you should probably have your emergency fund already set up before you start doing this 5% plan?

Hamilton: Emergency fund, yes.

Harjes: Just so that when and if your finances do hit that breaking point, you’re still prepared to cover your expenses?

Hamilton: Yeah, I mean the 5% plan doesn’t necessarily have to be for a mortgage. In this context, it does make sense. Maybe you could use the 5% plan for building an emergency fund as well.

Harjes: There you go. Anyway, it’s a very efficient way to see exactly how much you can afford to save.

Hamilton: Automate it. Take the emotions out of saving. That’s really what you’re getting at.

Harjes: Great, and what’s our second tip?

Hamilton: If you’ve got a 30-year mortgage, perhaps refinancing down to a 20- or 15-year mortgage may make sense. Essentially, what you’re doing is shortening that timeframe. You’re reducing the amortization, you’re reducing interest costs, and so forth, and the impact is just paying off your mortgage faster while reducing the interest costs. The monthly mortgage payment may vary, maybe if you’re refinancing from a 30 down to a 15-year, depending on where you are in the life cycle of that mortgage, you maybe paying more, you maybe paying less, but ultimately, the overall impact of your finances is improved over the longer term.

Harjes: Because there are so many different options, I mean the 20-year, who even thinks of that?

Hamilton: They’re rare. 1% of people apply for what they call “other” mortgage types, and 20% is in there.

Harjes: Interesting.

Hamilton: [It’s] very few people.

Harjes: As I was saying, there are a ton of different options out there for you. It’s important to get that calculator out, run the numbers. While you’re at it, check out fool.com/mortgages to find highly qualified lenders and perhaps a lower rate, including for refinancing a mortgage. While you’re there you can also get our free guide, Five Tips to Increase Your Credit Score Over 800. 

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