1 week ago Last updated April 2nd, 2021 45 Reads share

6 Secrets That Will Help Handle Your Mortgage Without Incurring Any Debt

Image Credit: DepositPhotos

Buying a house is one of the most common dreams of many people. While some can afford to make a significant upfront payment, more home buyers lean towards getting a mortgage to help them cover such a big purchase. However, there are instances wherein the mortgage payments may prove to be so significant that home buyers tend to get into debt to ensure that their monthly dues are settled. This article exposes some secrets that will help you handle your mortgage without incurring any more further debt.

1. Track Your Debts

When it comes to handling your mortgage, one of the biggest secrets that have been out in the open for quite some time but are still not widely recognized is the power of tracking your spending habits. In this case, the first step you need to do is to work out your monthly mortgage and the other debts you have, figuring out the total. When it comes to your mortgage, you can consider using a home loan calculator to have a good insight on how much you still need to pay should you consider a shorter loan term or make a higher monthly payment. On the other hand, you can also make a list of all the other debts you owe to clarify the total amount you have to pay in fees and interest.

From there, you will have a realistic view of the exact amount you have to pay back and how the interest and fees of different providers affect it. With a good idea of the total amount you need to settle, you will be able to create a viable budget that you can follow accordingly. Your budget should be based on what you earn, what you owe, as well as what you spend. Thus, you need to jot down all of the money coming in, such as your income or other sources. Alongside this, you should also record the amount of money that you need for your essentials, such as groceries and utility bills. In doing this, you will be able to identify whether you have room to make a bigger payment for your mortgage or you may need additional income sources to cover all that you have to pay.

2. Consolidate Loans in a Single Payment

When you consolidate your loans in a single payment, there is a greater chance for you to manage your mortgage more effortlessly. In this case, what you will be thinking of will only be your mortgage and a single consolidated loan that you need to pay back rather than multiple ones that you need to settle. In doing so, you may even enjoy the benefit of paying a lower interest rate that can lead to a decent amount of savings. Just keep in mind to consider all the factors that you need to think about, such as whether consolidating all your other loans in a single payment will indeed save you tons of interest fees and other charges or otherwise.

In parallel to this, consolidating your loans in a single payment will only be effective in ensuring that you can pay off your mortgage without incurring any more debt if you make your repayments on time. When you pay your debts on time, you will be alleviated from accumulating additional expenses brought about by late payment charges and other additional fees. Late payments can also hurt your credit report, which is why you should make an effort to settle your dues on time. You can then set up payment reminders or alerts to help you track when your payments are due so that you will not be caught off guard.

3. Make Extra Payments

To ensure that you don’t incur further debt while making an effort to settle your mortgage, look into the possibility of making extra payments, first to the other debts that you owe, then next to your mortgage. In this case, you can explore the snowball method, wherein you need to list down all your debts from the one with the smallest principal to the biggest. Put your effort into paying off the balance of the loan with the smallest principal. As soon as you have paid this loan off, proceed to pay the next loan on your list, adding the money you formerly allocated to your previous loan. In this way, you will be able to pay all of your debts in no time.

Perhaps the last item on your list will be your mortgage; Once you have settled all your other debts, put in the amount you used to pay your debts into extra payments to your mortgage. When you make extra payments on top of your regular mortgage payment, you will be able to pay off what you owe at a faster rate, which means that you will also pay less interest. Depending on your loan amount, this can translate into thousands of dollars in the long run.

4. Pay off Your Mortgage Faster

There are various ways on how you will be able to pay off your mortgage faster. Doing so will also help you save thousands of dollars in interest payments over the entire mortgage term. Some of the viable ways that you can consider when it comes to paying your mortgage faster include shortening your mortgage term, overpaying your mortgage, considering a remortgage, as well as paying fees upfront.

  • Shorter Mortgage Term

One of the primary ways to pay off your mortgage faster is by shortening your mortgage term. This technique ensures your lender that you will pay them back within a shorter time frame. However, you will also have to increase the monthly payments that you need to make in doing so. But even if you have to pay a bit more, you still have a great chance of saving thousands of dollars in interest throughout the mortgage. Just bear in mind that you need to be prepared to bear the higher monthly payment costs resulting from your payments being spread over a shorter period.

  • Overpayment

Another way to pay off your mortgage faster is by overpaying it. This means that you need to pay more than the required amount that you have to settle monthly. When you do this each month, the extra payments you pay will be accumulated, which means you get to pay off your mortgage sooner. However, you need to get in touch with your lender regarding this because if your lender doesn’t allow overpayments on your mortgage, you may even have to pay a fee. You should also clarify that you are making overpayments to pay off your loan faster. Rest assured that most mortgages allow for overpayments of up to 10% without penalty.

There are various reasons you may want to consider overpayments, and one of the most significant reasons to do so is when you have large debts that charge a higher rate of interest than your mortgage. You can also have access to a savings account that pays more interest than your mortgage. The key is comparing interest rates that you need to pay and the rates that you earn through savings because you will already be able to assess whether making overpayments prove to be advantageous for your case.

  • Remortgage

There is also the option for you to consider remortgaging in an attempt to pay off your mortgage faster. In this case, you need to scout for cheaper deals available throughout your mortgage term. From there, you will need to switch mortgage deals every few years, which will save you huge amounts of money that can be in the form of fees, time, and paperwork.

You can also get an offset mortgage, which links the savings account and your mortgage with the same lender. In this case, your savings are offset against your home loan size, which means that you get to pay less interest. For instance, if you have $10,000 in your savings, which is linked to your mortgage. When you have an outstanding mortgage of $200,000, it will be reduced by $10,000, which is available in your savings. Effectively, you also pay less interest, overpaying your mortgage without penalty.

  • Pay Your Fees Upfront

Finally, there is also the option for you to pay your fees upfront or in a lump sum at the start of your mortgage. In this way, you will pay less interest overall while you pay your mortgage earlier than the expected time frame. While there are cases wherein paying off your mortgage early proves beneficial, there are other situations wherein there are more benefits in doing something else with your extra cash. You have to bear in mind that paying off your mortgage early requires a huge sum. This means that you may also need to divert some of your funds from the other areas of your finances.

Therefore, before you commit all of your capital and extra money to pay off your debt early, you need to think about whether you have an expensive debt to pay or need to allocate your money in other aspects such as your business venture. Otherwise, you can put all your effort into paying off your mortgage and ensuring that you don’t incur any further debt. After this, you can already work your way in saving for your retirement.

5. Consider Ways to Put More Money Towards Your Debt

To avoid incurring any more debt while you are paying a mortgage, you need to consider other ways how you will be able to put more money towards your debt. In this case, you can consider getting a side hustle, with the extra money you make directly going to extra mortgage payments. There is also the option to withdraw from your retirement fund to pay off your mortgage and other debts. However, you need to consider the early withdrawal penalties and additional tax liability that comes with taking out money from your retirement account earlier than it is intended to be.

In case you have a life insurance policy, you can also consider cashing out from it, with the money you acquire going straight to mortgage and debt payments. However, like withdrawing from your retirement fund early, cashing out from your insurance policy has tax consequences. This can also affect the death benefit that your beneficiaries may claim later on. Nevertheless, there is always the option for you to settle with your other creditors, particularly when your accounts are already past due or you owe more than what you can repay in the coming years.

6. Come up With a Contingency Plan

Finally, make sure that you have a contingency plan that will help you manage unexpected situations. For instance, your loan provider can increase the interest rates or change their repayment terms without notifying you ahead of time. There may also be instances wherein your employment or health can prevent you from making the money you need to make repayments. It is in these instances wherein a contingency plan will prove to be beneficial. For instance, an emergency fund can help you avoid missing any repayment or accumulating more debt.

You can handle your mortgage without incurring any more debt by making it a habit to track your spending. There is also the option for you to consolidate your other loans in a single payment to make it easier for you to settle your dues. Make extra payments if you can or explore other means to pay off your mortgage faster. There is also the option for you to consider a remortgage. Still, most importantly, you need to come up with a contingency plan to ensure that not only is your mortgage settled, but you don’t fall into more debt while you are paying off your existing loan.

mortgage – DepositPhotos

Ana Young

Ana Young

Read Full Bio