Did you know that the vast majority of self-employed millionaire businesswoman (98%) are home owners? Not only that, but about one in three (34 percent) has a ZERO mortgage balance! One in five has a balance under $100,000, and only 4 percent has a balance of $500,000 or more. (SOURCE: Stanley, Thomas J., Millionaire Women Next Door, p 9).
While some may argue that it’s more “tax-savvy” to maintain a mortgage on your primary residence, I perceive the benefits of a zero mortgage balance to outweigh the cons:
1. One of the biggest benefits of paying off your mortgage is having financial security over the long-term. Paying off your home can give you a strong sense of financial stability and protection against an unstable housing market.
2. Once you pay off your mortgage you will have extra breathing room in your monthly budget. With the added flexibility, you can dedicate those funds to help build a solid nest egg for retirement.
3. An additional advantage to paying off your home early is having the financial freedom to pursue other ventures that require financial backing. Imagine being able to support a long-term missionary, loan funds to a female entrepreneur, or simply give a gift of a sizeable amount to a worthy endeavor.
So how do you do it? I have a few suggestions, as I’m wading through Step #7 as we speak.
The first–and easiest–step you can take is to “round up” and pay extra on your monthly mortgage. If your payment is $1120 a month, for example, go ahead and round up that payment to an even $1200. To determine how long an extra payment of X amount will take you, use any one of the free online mortage calculators below:
Another alternative is the “biweekly mortgage payment.” You make half of your mortgage payment every two weeks. That results in 26 half-payments, which equals 13 full monthly payments each year. That one extra payment can knock eight years off a 30-year mortgage, depending on the loan’s interest rate! The only caveat here is that not all lenders accept biweekly mortgage payments. Be sure to first check with your lender to see if they will process two payments at no extra charge.
A third way to pay off your home early is to do some quick back-of-the-napkin math to guarantee an extra payment. Dave Ramsey offers the following: “If you divide your monthly payment by 12 and add that amount to each month’s payment, you’ll end up making one extra payment a year. You’ll increase your $1,500 payment to $1,625, for example, but you won’t have to jump through a bunch of hoops with your lender to make it happen.”
A fourth option deals with “PMI,” or private mortgage insurance. If you’re paying PMI each month, check the equity in your home. If it’s at 20% or greater, you can request that the mortgage lender remove the PMI while you continue to make the same payment each month. Before you know it, you’ll amass an additional payment without any additional effort!
Today’s Bite-Size To-Do:
Contact your mortgage lender and inquire about biweekly mortgage payments. Whatever you do, do not pay a fee to initiate a biweekly mortgage plan.
Investigate your options for a refinance. (I recently completed a 15-year refi and cut my interest in half!) BONUS: If your home loan is with your local credit union, they may make an exception and allow you to lower your interest rate without having to undergo a typical refinance. Most only charge about $100 for a filing fee . . . well worth it!
Take advantage of the online mortgage calculators mentioned above. Play around with the numbers, and be encouraged that you can pay off your home sooner than you think!
Don’t forget to review the first six posts in the series…
Step 1: How I paid off $93,000 in less than 3 years
Step 2: Budgeting
Step 3: Save $1000
Step 4: Debt Snowball
Step 5: Your Emergency Fund
Step 6: Invest