O.K., so how do you own your home sooner than later? Answer: Don’t take a mortgage! Ha ha, ba dump bump. A bit of a joke, but we know most people actually need to take financing in order to buy a home, and real estate investors actually get a greater return on their investment if they use financing as part of their investment strategy. Lately I have been hearing Ric Edelman commercials on the radio touting that getting a mortgage is the best thing you can do right now because rates are low, you can preserve your cash and possibly take advantage of investment opportunities. To each his own. Truth be told though, it can be a pretty good thing to eliminate debt because less debt equals increased equity, more cash flow and more freedom to plan for the future. Tax deductibility is an important feature as well, but should not override all the other important components that go into deciding to be debt free. Better that 20 million U.S. citizens own their homes free and clear. Some bought with cash while others paid down on their mortgage year after year reducing it to 0. I make my living assisting borrowers by helping them obtain the best mortgage financing for their situation, but ultimately, providing a choice is what’s best for the client and borrower and is what makes me happiest, and so I reveal four strategies to own a property sooner rather than later and eventually be debt free.
1. Choose a 15-year mortgage.
Lower rate and higher payment. If you can manage the higher monthly payments, a 15-year fixed mortgage may be the way to go.
2. Pay off your 30-year mortgage early.
Many people can’t afford to make the higher monthly payments on a 15-year fixed mortgage, but you can still speed up the time of being debt free on your home. Simply, make the payments on a biweekly, instead of a monthly, schedule. This simple change can cut the total payment time by six years. Here’s how it works. Take your 30-year mortgage and split it down the middle and pay half every two weeks, which turns out to be one extra payment a year—13 payments instead of 12.
3. A biweekly payment plan with your lender.
Many mortgage lenders offer programs designed to totally automate the bi-weekly process. Call your lender or go to its website. There are outside companies that run the program for them. These companies generally charge a setup fee of about $200 -$400. In addition, there is typically a transfer charge of $2.50 to $6.95 every time your money is moved from your checking account to your mortgage account. I recommend that you do the same thing for free. What you can do is add 10 percent to your regular mortgage check each month and have the money applied toward the principal. The effect will be the same—just check your monthly statements to make sure they did it correctly.
4. Downsize
Sounds drastic, but if it’s about lifestyle choice and financial freedom you “gotta do what ya gotta do!” If you’re bent on getting rid of your mortgage, consider selling your larger home and using the proceeds to buy a smaller, less expensive home. With the profits from your home sale, you may be able to pay all cash for your new home, but even if you have to get a small mortgage, you’ve succeeded in reducing your debt. If you are over 62, you even have an additional downsizing option. You can buy a smaller home, and take a smaller reverse mortgage which would eliminate your mortgage payments completely.
Carl Guzman, NMLS# 65291, CPA, is the founder and president of Greenback Capital Mortgage Corp., a Zillow 5-star lender http://www.zillow.com/profile/Greenback-Capital/Reviews/?my=y.He is a residential and reverse mortgage financing expert and a deal maker with over 26 years’ industry experience. Carl and his team will help you get the best mortgage financing for your situation and his advice will save you thousands! www.greenbackcapital.com [email protected].
By Carl E Guzman, CPA
