There are various rules of thumb when it comes to your housing. If you are looking to buy a house, the one suggestion is that you look for homes priced no more than 2.5 times your annual income. So if your annual pay is $100,000, you would look for homes priced in the $250,000 range.
This rule is very simple, as there is a lot more than the price that factors into this formula, such as how much you must borrow, what your total monthly expenses are, whether you could deduct housing costs on your tax return and whether you have other assets on the side. It also ignores the mortgage interest rates and related mortgage costs. But it’s a good rule of thumb.
There are several ways to quickly pay down or pay off your mortgage.
The ultimate goal is to pay off your mortgage before you retire. Keep in mind that as your home ages, it will get more expensive to maintain. If you can pay off your mortgage before you retire, you will be much better off covering the additional upkeep necessary.
Make it a challenge! But make it a realistic target date to pay off the mortgage. Keeping track of your progress helps you stay motivated in reaching your goal.
Round up your monthly mortgage payment to the next whole-dollar (or $5 or $10). For example if your payment is $847.30 per month, pay $848.00 each month. Even better? Make it $850.00! Rounding your mortgage payment to the next whole-dollar, or $5 increment will bring major savings in interest cost over your mortgage life. Start rounding up your mortgage payment to take advantage of this great savings opportunity!
Make automatic biweekly payments. Contact your mortgage provider to set up automatic biweekly payments. If your mortgage provider charges a fee for this, set up your own accelerated mortgage payment plan for free. Make half your mortgage payment every two weeks (biweekly)! For example, if your payment is $1000 per month, make $500 payments every other week. This allows you to make one extra payment each year. You would be making 13 payments per year instead of the traditional 12, which would help speed up the mortgage payoff schedule by approximately 4-5 years.
Keep your mortgage payment below 28% of your monthly income. That should be your target when buying your home. Buying a home you can afford helps you make your monthly mortgage payments plus extra to pay it off quicker. Take a look at your finances on a regular basis, especially before buying a home. This will help you determine how much you can afford to spend on housing.
Get a 15-year mortgage, instead of a traditional 30-year mortgage. But make sure you can afford it (see above 28% rule). If you are already in to a 30-year mortgage, refinance to a 15-year note. You’ll pay off your mortgage quicker, plus you almost always have a better interest rate, shortening your loan terms. With the shorter term, you’ll pay a lot less interest. If you cannot afford a 15-year, some banks offer a 20-year. Just remember to keep your house payment around 28% of your income.
Reduce all your expenses. Develop a monthly budget, and come up with ways to cut costs. Consider switching cell phone carriers or insurance providers. Cutting your cable service or asking for a reduction. You can also increase your income by taking extra shifts or working a second job. Put all your extra income including work bonuses, annual tax refunds, to paying off your mortgage. Put your windfalls towards your mortgage. Other potential windfalls include, gifts from a relatives or friends. And if you get a raise, put it towards your mortgage and you won’t even miss it!