If you want to buy a home but don't want to spend a ridiculous amount of money on interest and make mortgage payments for the next 30 years, you have options. You don't have to take on a traditional 30-year mortgage, and you definitely don't have to pay all the interest that comes along with one. The amount of interest that you would pay on a typical 30-year mortgage for $200,000 at 4.5 percent is nearly $165,000. That's a lot of money. Following are a few strategies for reducing your interest payments and getting out from under your mortgage sooner rather than later.
Opt For Shorter Term
Most mortgages are for 30 years, but not all of them are. You also have the option of financing your home for 15 or even 10 years. While your payments will be higher for a shorter mortgage, you will pay less in interest over the course of your loan. So more of your money will go towards the principal balance. If you can't afford a shorter mortgage in the beginning, you may be able to refinance for more favorable terms later on.
Pay More Toward Principal
Paying extra on your mortgage each month can save you a gargantuan amount of money and will shorten the length of your loan. Paying an extra $200 each month on the above mortgage will shave 8 1/2 years and $52,756 in interest off your mortgage. If you can pay an extra $1,000 each month, you can have your mortgage paid off in just a little over 10 years. These are examples on both ends of the spectrum, but the point is that paying extra toward your principal balance, no matter how much you can afford, can have a huge effect on how long and how much you end up paying.
Select Bi-Weekly Payments
When you take out your mortgage, you will have the option of making bi-weekly payments rather than monthly payments. If you pay bi-weekly, you will end up making an extra mortgage payment each year, which may not seem like much, but it really adds up. On the above mortgage, you would save nearly $30,000 in interest and take 5 years off your mortgage.
You don't have to feel stuck with a traditional, 30-year mortgage. You have repayment options. The more you can pay each month, the quicker you will have your mortgage paid off. Plus, you will save lots of money that would normally go toward interest.Share