TEAM PARADISE OFFERS BEST PRACTICE TIPS FOR HOMEOWNERS
Many homeowners never imagine owning a home free from debt. Here are a few tips for building your home equity faster.
So let’s start by stating that a home’s equity is an asset and an appreciating home is an investment. And while some homeowners have resolved themselves that a mortgage payment is just an acceptable part of life, other people have set goals to get their home paid for as soon as possible. There are several strategies that will work AND they all require persistent discipline.
Consider this for a moment, a shorter term mortgage such as 20, 15 or even 10 years will not only pay off sooner, it will generally have a lower interest rate.
Fact 1: The BIG advantage to have a shorter term mortgage is the speed in which equity builds. A recent comparison at Freddie Mac’s Primary Mortgage Market Survey showed a 30 year fixed-rate mortgage at 4.04% compared to a 15 year fixed-rate at 3.20%. The fees for the shorter term were even .1% less. The shorter term with the lower rate would have a higher payment but some people consider it forced savings.
Fact 2: Additional principal contributions to any length fixed-rate mortgage will save interest, build equity and shorten the term of the loan. Some homeowners may apply lump sums at various times during the year such as when bonuses are paid or a tax refund is received. Other owners might increase their payment by $100, $200 or more each month. Setting the increased payment through electronic banking would insure that you consistently make the extra amount.
Fact 3: Bi-weekly payments make 26 half-payments in a year which equals 13 full-payments. Because of the frequency, it reduces the interest that is due. This might work well for borrowers who are paid every two weeks but could present cash flow problems for those who are paid on schedules that don’t coincide.
Making one extra payment a year will have almost the same effect as a bi-weekly payment. The 13th payment would be completely applied to principal.
Our Team Paradise wants to help you make wise decisions with home ownership. Before embarking on one of these strategies, it would be wise to verify with your lender that it complies with their policies. It might also be time to consider REFINANCING to reduce your overall interest to help make the most of your plans to build your home equity faster.
Check out the Equity Accelerator to see how it could affect your loan.