Americans are buried under debt. Debt affects almost every American. Some (actually many) have taken a student loan to further their studies and are not able to pay it off. Some have huge credit card debt against previous expenses while some others struggle to repay mortgage loans.
Paying off credit card debt is the easiest. There are way too many handy workarounds out there guiding students to repay the money they borrowed in the past. Moreover, lenders are flexible enough to negotiate with the students, increase their tenure and maybe reduce interest rates. Repayment mortgage, however, is an entirely different ballgame.
A little background
A little bit of background is needed to understand the context of mortgage loans and their repayment. The events leading to a mortgage loan are most likely to be this:
After graduation is complete, people begin looking for jobs. They can land jobs but their salaries would be decided to depend on their major and relevant experience in the field. After securing a job, the next thing people do is to build their dream house. But buying a house in this tough market is expensive, so they are more or less forced to take a loan.
To repay mortgage loans, they give away most of their savings and later regret that decision. To make matter worse repaying mortgage loans normally take a lot of time and meanwhile consumers find it hard to get other loans as their credit report shows unpaid mortgage loan and lenders hesitate to give loans to them.
Why it takes time
There are more reasons than one that mortgage loan repayment takes so much time. One reason is the high mortgage rate. Homeowners with a low mortgage can repay mortgage loans with relative ease. However, this is not always a good idea as the early repayment mortgage might deprive them of other financial pursuits.
For example, low mortgage rate might inspire people to use the extra money to pay off the mortgage amount way ahead of the schedule. This may be financially burdensome for them in the future. Instead of doing this, they are strongly recommended to put their money into 401(K) or in Roth IRA.
Lack of strategies
The case with most people is that they don’t look at repayment mortgage as a strategy, rather as a liability and delay paying off the mortgage. Having an actual strategy can help you immensely for you can navigate through all the options that allow you to repay mortgage loans, all the while not losing half your asset.
Short-term mortgage refinancing
Short-term refinancing allows you to pay off the mortgage amount with less hassle. It’s an excellent strategy and people who used it got benefited. This strategy is useful only when you have a long-duration mortgage, say 30 years. Short-term refinancing enables you to pay off the mortgage in 10-15 years, with a changed set of rules.
The question is how does short-term mortgage refinancing repay mortgage loans without wasting time and saves money. Let’s say you have taken $200000 as mortgage loan for 30 years at a 4.5% interest rate. Short-term refinancing allows you to change the terms of the loan to repayable in the next 15 years at a 4% interest rate. You not only repay the loan 10 years ahead of the schedule but save $60000 as well.
There’s one caveat though. When refinancing, make sure the new interest rate is lower than the previous interest rate. Oftentimes, the problem with short-term refinancing is the closing cost. If the cost is too high, it’s pointless going for it.
Not increasing the monthly payment
Paying a little more each month can repay mortgage loans early. But once again, you cannot simply increase the monthly amount. You need to follow strategies to pull it off correctly. The strategy successfully applies only when you have been paying a minimum for a really long period of time.
All you need to do is divide the monthly principal and the interest by 12 and whatever amount comes from the division, add that to the existing monthly payment. However, before you go this route, talk to your mortgage company. They will use their mortgage calculator and consider your current financial position to determine whether such an aggressive mode of repayment mortgage would be good for you.
Understand repayment mortgage
Whether you swap mortgage or refinance, understanding repayment mortgage can help you. This kind of mortgage separates interest payments from capital payments. Capital payment is repaying the money that you’ve borrowed and interest payment is paying the interest charges.
People want to repay mortgage loans, but situation often prevents them. In this article, I have discussed some of the likely scenarios that may occur once you take the loan. Understand these scenarios and do your best to avoid the problems that affect far too many people who have borrowed money to buy home.