It takes a lot of elbow grease and strategy to pay off your mortgage. But it’s worth the effort if you want to live in a house free and clear. Even with rising housing costs, most homeowners could reduce mortgage debt by making some simple adjustments to their monthly budgets.
It might take time, but it’s well worth the payoff when you stay in your home for years instead of renting. If you have a good understanding of where your money goes each month, reducing mortgage debt becomes a lot easier than you think.
Here are seven ways to reduce mortgage debt without selling your house or feeling stressed about paying off your loan promptly.
Pay off debts with the highest interest
If you have a credit card or other consumer debt, pay it off first. This can result in a substantial decrease in monthly payments and better cash flow on your mortgage.
According to the National Foundation for Credit Counseling, more than half of consumers who pay off the debt within their first year of doing so can reduce or eliminate their monthly mortgage payments.
But your lender will want to see a sizeable reduction before they approve such a change. If you have the cash, you can offer your lender a lump sum to reduce your overall loan amount. This is called a “payment reduction.” If your mortgage lender is happy with the reduction, you’ll then be able to pay off your loan more quickly and with less interest.
Lower your housing costs
Consider cutting your cable and internet costs, especially if you use them for very little. When you can trim $100 off your monthly bill, you’ll have an extra $100 that’s not going toward mortgage payments.
This can help reduce the number of monthly mortgage payments and add an extra buffer to your budget. There are also discount coupons for services you’re not using, like a gym membership you don’t go to. Try to cut costs where you can and find ways to increase your income. You can probably earn money as a babysitter or dog walker. And try to get your kids involved with yard work or animal care. These are ways to earn extra money and spend less on housing costs.
Save for a down payment
Many mortgage lenders will require a down payment of at least 5 percent of the purchase price. This can add a big dent to your monthly payments and put your home ownership dreams on hold. But if you can save up to 10 percent, you can reduce your mortgage debt by 3 percent every month. And most mortgage lenders will also reduce your interest rate down to the government-controlled rate as long as you are making a substantial down payment.
With a lower monthly payment, you can put money away for a larger down payment sooner. Even if you don’t get the full 10 percent down payment, you’ll have enough cash to buy a home sooner and pay off your mortgage sooner. It’s worth the sacrifice to help you own a home sooner.
Estimate future payments and include them in monthly budgets
Estimate how much your monthly mortgage payments will be in the future, including principal and interest. Then, include this amount in your monthly budget. This will help you plan for the future and avoid surprising expenses that can derail your monthly income.
A mortgage lender will note how quickly you’re expected to pay off your loan, which can make you nervous about when you’ll pay off your mortgage. So, include monthly payments in your budget. This will help you stay organized and focused on paying off your loan promptly.
Diversify income streams and invest
One of the best ways to reduce mortgage debt is to diversify your income streams. Take on extra work, start a side business or do a mentoring program to bring in extra money. The more diverse your income streams are, the less likely you are to have one source of income drop off. In a down economy, one income stream can be hit especially hard.
Create a special account for mortgage debt payments
If you have an account with a Roth or traditional 401k-type plan, consider transferring some of your loan payments to this account. This will make them tax-free and provide a saving option with a fixed amount.
You can then move these funds into an investment account, depending on your tax situation and how flexible you need this account to be. When you have a specific amount for a fixed purpose, like paying off your mortgage, it can be extremely helpful. The best way to use this account is to have a specific purpose and no additional funds.
Tie up loose ends when you’re done paying off debt
And one final tip to remember is to tie up loose ends when you’re done paying off debt. Consider selling some of your assets if you realize there is still money that is “loose and tied up” in debt payments. This is a great way to quickly pay off debt and put some cash in your pocket.
If you want to live in a house free and clear, it takes a lot of effort and discipline to pay off your mortgage. But it’s worth it if you want to stay in your house rather than rent.
There are many ways to reduce mortgage debt, including cutting cable and internet costs, saving for a down payment, diversifying income streams and creating a special account for mortgage payments, and tying up loose ends when you’re done paying off debt.