Your Questions About How To Pay Off Mortgage Quicker

Susan asks…

Pay off mortgage quicker in the UK!!! How!?

Firstly, I’ve done the obvious – reduced my term left on the mortgage & increased my monthly payments…. and I shop around for the best deals for my mortgage.

However, in my constant search to find out other ways of reducing my debt to the provider quicker to become mortgage free sooner, I’m now a bit stuck so I was wondering if anybody has ideas on how to go about this.

Can I say, I’ve considered selling my organs but even I thought that to be a bit extreme!!! (hehe!!)

Any ideas would be greatly appreciated!!!

richmama answers:

Find more money: how much would you get for the wife and kiddies?

Seriously though, generating more cash sounds like the only way you can improve things. For instance, getting rid on any credit card debt is the number one way of reducing outgoing. Then checking out the insurance deals for house and car with a view to reducing premiums. I take it you are not buying any morgage payment protection insurance? If you are, get rid of it: its a huge rip-off. Are your savings getting the highest interest for you or would you be better off leaving yourself a three-month cushion and spending the rest on reducing the capital on your morgage?

Next, have a look at your utility bills. Gas prices are falling, are there better deals out there? Same with electricity and telephone. Is your household insulation up-to-scratch? Have you fitted low-energy bulbs and reduced the settings on your thermostat to the lowest possible (both for heat and time duration)? Another long-term saver is to check out your fridge and freezer settings: if they are set too cold that is pennies-per-day dripping away. Over a year that makes a difference.

You are getting the general idea. Don’t over-do it though. I have known people who have taken it to extremes and it has resulted in unhappiness and divorce.

Good luck!

Laura asks…

How much extra to pay towards mortgage?

I want to start paying extra towards my mortgage to help pay it off quicker. My lender agent originally suggested $100. I can afford $200 and was thinking of doing that. The more the better right, as long as I can afford it? Or does $100 make the most sense? My main question is, what do I put the extra money towards, principal or escrow? I believe it’s principal, as that is the actual money I owe right?
My wife and I do have a lot of credit card debt. We’re paying about $325 extra a month towards that. Should I hold off on the extra mortgage until all the credit card debt is gone? And put $525 towards credit cards?

richmama answers:

Absolutely pay the extra to the credit cards first. Most likely your rate is higher on the cards than it is on your mortgage and you get no tax breaks for the credit card interest like you can with a mortgage. Paying down credit cards will also help your credit scores which would make borrowing easier and less expensive in the future if you need it. After you get the cards paid off make sure you put something away for savings so you won’t have to use the cards every time an expense comes up.

When you start paying extra on the mortgage your only choice is to reduce the principal. In the escrow account if you get more than a two month cushion over and above the anticipated amount of your bills the lender is required to refund it to you.

Thomas asks…

Is it alright to pay off more..?

than the mortgage payment? For example, if my mortgage payment is $500.00 a month, but lets say one month I am able to pay $700.00, can I pay 700 this month and back to 500 the next month?Or should I just pay my mortgage amount? I would like to pay it off a quick as possible, but I also don’t want to mess anything up and make extra work for them to give my a new amortization schedule.

Why or why shouldn’t I pay off each month how ever much I can even if it is higher than my monthly mortgage? Thanks

richmama answers:

You need to check if you have a prepayment penalty clause for your mortgage. If you have no penalty, then there is no problem paying off more than the minimum in any given month. If you want to pay 700 this month and back to 500, that is fine as well.

Your amortization schedule will change, but your overall interest expense will be much lower if you continue to make extra payments to your mortgage because you’ll pay it off faster!

If you do have a prepayment penalty in your note, then you will have to see what the details of the penalty are. Usually, the penalty will only apply if you pay over a certain amount, such as 20% of your mortgage balance, so a small contribution to your monthly balance will not invoke the penalty.

Carol asks…

How safe is it to spend all my money paying off a house quickly if I have no other cash reserves?

If I get into a bind during the term of my mortgage what will protect me if I can’t make my monthly payments? Should I spend the least amount of cash for amortgage and have liquid side investments or pump all my money into the house to try and pay it off quicker? And if I do pump all my money into the house is it really safe during the term of my mortgage in case something happens to me financially and physically?

richmama answers:

EEEEK! Don’t do this!!! I can’t stress that enough. Look, I’m all for paying off a mortgage, and trying to avoid interest, but you can’t put all your financial eggs in one basket. First, your mortgage is one of the lowest interest rates you’ll ever pay. What if your car goes belly-up? You’ll have to replace it at a much higher interest rate than your mortgage is going to cost you. For heaven’s sake, investments are probably going to pay you at a higher rate than your mortgage is levying on you. And you rightly point out, if something happens and you can’t make your monthly payment, late fees will begin to accrue, this affects your credit rating and other nasty things. When you think about personal finances, you MUST think about diversification. If you have a savings account that can cover emergencies, if you have established an IRA AND a 401K plan, if you have a good mutual fund going, THEN you can see if you can add a little extra to your mortgage payment. To address the last part of your question, I’m not sure I understand, the “is it safe?” part. The more you pay on your principle of your house loan, the more equity you establish, so you could borrow off that, or realize it if you sell the house. But for God’s sake, protect yourself, diversify your investments. That is a much sounder financial plan.

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