Pay off your mortgage fast with a 50/50 plan
Don’t you want to pay off your mortgage as soon as possible? Pretty much everyone would like the freedom of dumping what’s probably their largest monthly expense. But one Michigan couple actually put their money where their mouth was and retired their home loan in just 4 years!
And you can too. Check out these methods for paying off your mortgage as soon as possible.A lower rate equals a lower payment. See what's available here (Feb 21st, 2020)
The 50/50 plan: drastic, but doable
Andy and Nicole Hill went all-in on their mortgage payoff strategy. Okay, technically, they went half in. Because their 50/50 strategy means living on just half of their income and devoting every penny possible to mortgage reduction.
They did it with a zero-based budget, which means that every single dollar must be accounted for every month. You take your bills and allocate what’s needed to pay them. Then you divide what’s left into necessary living items, like food, and excess which can be used to pay off your home sooner. This budget allows no impulse buying or “walking around” money.
Suppose that you earn $6,000 a month, bring home $4,500 a month, and have a $1,500 a month house payment and a $300 a month car payment. By cutting the rest of your spending to $450 a month, you have $2,250 a month to pay down your principal balance.
If you have been paying on a 30-year $250,000 loan at 5 percent for five years, this plan could see you mortgage-free in a little over five years. Of course, the higher your income, the faster your mortgage acceleration can take place.
The 15-year plan — easier to budget
You can save hundreds of thousands in mortgage interest by choosing to refinance to a 15-year home loan. Not only do you save by shaving time off your repayment; you also get a lower interest rate by choosing a shorter repayment.
In the example above, you could refinance to a 15-year loan at 4 percent, pay $356 a month more, and save nearly $100,000 in interest charges. And you could choose to make extra principal payments to get out from under your loan even faster.
The extra payment
One strategy that many use is less drastic, but it’s also “sneaky” because you are less likely to miss the extra payment. This plan simply involves dividing your monthly payment in half and paying that much every two weeks. It’s pretty easy if you get paid every two weeks.
By paying half of your mortgage every two weeks, you effectively make an extra payment every year. You can also add to this, directing every tax refund or another windfall to mortgage acceleration.
That one extra payment each year shortens the repayment in our example by three years and eight months and saves almost $20,000 in interest.
Where does it come from?
How did the 50/50 couple from Michigan manage to direct half of their income to mortgage repayment? They mainly cut their food budget by one-third, they said, got rid of cable TV and bought cheaper phone plans.
But there are many creative habits for repaying your mortgage faster.
- Find free ways to exercise and stop your gym membership
- Learn to cook and entertain at home instead of frequent restaurant trips
- Buy food in bulk and cook it from scratch — you’ll be healthier too
- Renegotiate your biggest bills, like insurance
- Get stingy with utilities –your local company may offer a free evaluation of your use
Keep in mind this frugal lifestyle doesn’t have to be forever, But once you’ve unloaded your mortgage, you’ll enjoy a freedom that few have.See today's lower rates here (Feb 21st, 2020)