Just some perspective facts to start. There are 136 million home owners in the US. 34%, or 1/3 of those homes, are owned free and clear and another 14 million homeowners owe less than 50%. I am NOT in either one of those categories. Thankfully I am also not
in the statistic of 5.4 million who are negative 20% or more on their homes. Another interesting fact is that the median amount that a homeowner put down on a home was 20% 10 years age, while today it is at 5%.
Homeownership is still a hope of almost all of the younger generations. Those who own eventually realize 44X the net worth of those who rent (or live at home with parents). Neighborhoods with high ownership tend to be safer with less crime and the owners more engaged in their communities.
As you know, most of your monthly payment for the first decade is interest. Since the average length of a mortgage is 3-5 years, most of us pay down very little principal. Here are 7 ways to get ahead and pay off your mortgage early.
1- If you figure out what your principal payment is monthly- double just that amount and add it to your usual payment, it will cut your term from 30 to 19 years.
2- If you arrange to make bi weekly payments is actually forces you to make one extra full months payment a year- cutting 8 years off your term.
3- Pay a little extra each quarter. This is especially good for those of us on commission or those who get bonuses. Pay one extra full payment a quarter and it will cut 11 years off of your term.
4- Windfall payments- when you get an inheritance or a large tax refund. Just make sure you earmark it towards principal.
5- Refinance to a 15 year mortgage. Usually Buyers start with a 30 year mortgage but eventually they will “grow into” the payments and that is a good time to refinance into a 15 year term.
6- Do what you can. Just increasing your payment by a couple hundred dollars a month or whenever you can will shorten the term.
7- Divide you normal payment by 12 and pay that much more each month. Again, this will cut your term by 8 years.
It is recommended that the FIRST things you should do is to fund your SEP, 401K or IRA, then pay down investment properties. Both are income producing vehicles. Your residence is not income producing but it still feels great to reduce your mortgage to the point of paying it off. You will lose that tax benefit but gain peace of mind. There are times when you will pull money out of the equity of your home: to start a business, college expenses, medical emergencies. It is BEST NOT to use your home as an ATM.
This is going to be my focus for 2019. 2018 it was health and wellness for me. 2019 my “ONE THING” is going to be financial intelligence and management. I know that the best time to start this was 20 years ago but I also know that the second best time to start is NOW.