No one ever wants to default on a mortgage because of the consequence attached to it, but being held down by this same mortgage for an extended period is also a burden that everyone wants to get off their shoulders. This is the reason why it is sometimes advised to pay off the mortgage bills as early as possible to relieve the burden of payments from your shoulders.
Assuming zero knowledge of the readers about a mortgage, this article will enlighten us about what a mortgage is and the firm responsible for the funding of these mortgages (Mortgage companies).
A mortgage is a legal agreement that exists between the lenders (like your bank or a private mortgage company) to lend a certain amount of money to a borrower (like yourself) subject to an interest charge and collateral (the property being purchased). The principal activity of a mortgage company is to provide mortgage loans. A mortgage company can be a credit union, trust company, bank, or a private lender.
Since we now have an idea of what a mortgage is and the organization responsible for the servicing of a mortgage, let us discuss on how to erase the mortgages of our properties quickly:
- Refinancing the mortgage to a shorter term: Refinancing means the act of taking out a new loan for the sole purpose of offsetting the existing loans. It is mostly done by borrowers to get an interest rate that is lower than the interest rate of the prevailing loan. For example, an individual who was given a 35-year fixed rate mortgage of $250,000 at a 5 percent interest rate. Seven years later, the individual refinances the mortgage into a 13-year loan at 4.5 percent interest rate. This means that the mortgage is being paid off fifteen years earlier than initially booked which in turn saves the individual a lot of money that would have been paid on interest. Though refinancing comes with closing costs and a quicker settlement of the mortgage means an increased monthly payment but on the long run, when the interest rate is right, it is usually still be cheaper than keeping the mortgage for another 15 years. One of the major reasons for refinancing is a reduced interest rate. Therefore, if the interest rate is not cheaper than the previous one, refinancing will not be a good option.
- A little more can be paid every month: Though refinancing is a good option, one can still get all the benefits of paying off a mortgage early without incurring a cost on refinancing and this can be achieved by paying a little more each month. One way to do this is to add 1/12th of your regular monthly payment when you submit your mortgage payment. This will, in turn, lead to a 13-month payment per year you do this. It is advisable to contact your mortgage company before making any changes on the monthly paid, so the extra money is paid directly to your premium. You should also be followed up to ensure the extra payments are being reflected properly on the statements.
- An extra payment can also be at the 13th month of every year: I know what you are thinking, there is no 13th month in a year! Well, true there isn’t, but just like a bonus that is given by an employer to the employee at the end of the year is considered 13th-month salary, so will an extra payment at the end of the year be considered to be the 13th-month payment. One of the ways this can be achieved is by setting aside and saving at least a 1/12th of your mortgage payment and at the end of the year, submitting what you have saved as an extra payment.
- Bonuses, tax refunds, and other extra cash: There are some instances when you may receive extra cash like a bonus from work or a tax refund – these additional funds can be channeled into the servicing of the mortgage which in turn will lead to a reduced number of years for repayment.