When you signed your mortgage contract, you might not have had a clear idea of how much debt you were actually committing yourself to repay. The high principal seems difficult enough to cope with, but the beastly interest rates are really what kill you in the long run. If your mortgage seems to have gotten out of control, it’s time to tame it. Follow these tips to help you pay down your mortgage and save money long-term:
1) Take advantage of your end-of-term options.
If you’re coming to the end of your mortgage term, you’re in luck: both fixed and variable rate mortgages are at some of their lowest ever rates, so you may be able to negotiate a better deal with your current lender. On the one hand, lower interest rates often mean that you’ll be able to decrease the amount of your payments, thus making them more manageable. On the other hand, if you can keep paying the higher rate, you’ll be able to shorten the lifespan of your mortgage by paying down the principal faster.
If you’re really in trouble with your mortgage payments, you may consider extending the life of your loan to reduce your monthly payments when your current term is over. However, keep in mind that by extending the amortization period, you’ll end up paying more—not saving.
2) Consider prepayment opportunities.
Looking forward to a year-end bonus or a large lump sum in the form of an inheritance or divorce settlement? Apply it to your mortgage. Most mortgages allow you to make an annual prepayment of up to 10% of your principal. This will help you keep your mortgage in check long-term.
3) Increase the frequency of your payments.
Not only is your huge monthly mortgage payment daunting, it’s also not a very smart way to pay back your mortgage. The traditional method only allows you to make 12 payments a year, but if you do the math, paying bi-weekly allows you to make 26 payments, not 24. That’s one whole extra payment per year. Make sure your lender doesn’t charge additional fees for this option, and specify that you want your payments to be applied toward the principal, not the interest. Added bonus? You may budget better when you have bi-weekly—instead of monthly—payments to make.
Final word: If you’ve fallen behind on your mortgage payments, contact your lender immediately. You may be able to work out a deal to reinstate, redeem, or refinance your mortgage to get your payments back on track before legal action is taken.
Michael Edmondstone is a financial writer and blogger. He advises you to check out Ratesupermarket’s mortgage rates if you’re thinking of refinancing your mortgage for a better deal.
Michael Edmondstone is a freelance personal finance writer.