https://www.youtube.com/watch?v=640bcTSG3CM&t=1s
Remember, the goal is to pay off your mortgage sooner and save on interest payments. Consult with your lender and use online tools to determine the best strategy for your financial situation.
So today, we're going to talk about how to pay off your mortgage faster, and I see a lot of misinformation on the web, and that's why I wanted to do this video: to make sure that you guys don't end up in a bad situation. So, in this video, I'm going to cover a couple of ways to pay off your mortgage quicker, as well as what you need to watch out for. So, if you have questions afterwards, drop them in the comments. If you've done this, drop it in the comments. Okay, so let's talk about the first misconception that I see all the time.
Let's say that you have a 30-year fixed-rate mortgage, and maybe you got that in 2022, and your rate's really good, it's like 3%. Oh my goodness, I've actually had people call me who have 30-year fixed mortgages at 3%, and they're calling me because they want to refinance into a 15-year so they can pay off their mortgage faster. No, okay, no. Now look, if going from a 30-year to a 15-year gave you a lower interest rate, that may make sense. But what's really important for you to know is whether you have a 30-year loan, a 20-year loan, a 15-year loan, if it's a conventional mortgage, you always have the right to pay it off faster, same with VA and FHA. Okay, so what that means is this: if you have a 30-year mortgage and you're like, "Jen, it's a 30-year mortgage, but I want to pay it off in 15." Okay, guys, there are a million calculators online where you can say, "Okay, my mortgage is $400,000, my rate is 3%, what do I need to pay monthly to pay it off in 15 years?" Then what you're going to do, so we're just going to do some easy math, so let's say this is not based on any specific number, but let's say that it's $3,000 a month as a 15-year and $1,500 as a 30-year. You're going to make your $1,500 payment and then you're going to talk to your lender about making an additional $1,500 payment every month. Now, some lenders make this really easy, you know, where my mortgages are held, it's online, I can easily go in there and put the additional amount of principal that I would like to pay every month. Okay, because if you just put $3,000 in the payment box but you're not specifying that you're paying that extra chunk towards interest, well, they're probably just going to screw up your whole payment cycle. Seriously, you have to make sure that you are saying that you want it to go towards interest. So it's really important that you know that. Now, if you're like, "Okay, but if I tell them I want to do that, like do I have to do that forever? What if I hit hard?" No, no, that's the cool thing, and it's one of the reasons I generally am suggesting a 30-year is because there's flexibility. So, like for instance, I have a 30-year mortgage, and I have a base amount that I pay every single month towards extra principal, right? And that's because I want to get this loan paid off sooner rather than later, and what I do is if I'm feeling like, "Wow, like I've got extra money that I want to spend on my mortgage," I can increase it, and if I'm like, "Oh, it's a bad month," I can decrease it. So just make sure you're paying attention to that, of course, you still have to make your core payment, but in regards to paying additional principal, that's up to you, and with most of the systems I've seen, most lenders, it's really easy to do if you do online bill pay, like really easy.
Now, the one thing I want to caution you against because I've seen people get into a lot of trouble with this: Bi-weekly payments, okay? And the theory on it is, look, the way it works out, it's almost like making an extra payment every year. Cool, if you want to do bi-weekly payments, you have to call your lender, okay, and I'm telling you this because a lot of them do not have that as an option. People assume, "Oh, I'll just start paying bi-weekly and it will all work." Uh-uh, no, it can actually lead you into a hideous problem because most lenders, if you write, let's say your bill's $1,500, you write them a $700 check, they're going to cash it, but they're not going to apply it to your mortgage because it's not a full payment, and you haven't talked to them about doing this, okay? Okay, it's a totally different setup in their system, and you have to realize that, you know, all of this stuff is tied to tech, and there's rules on what they can and can't do, and partial payments is an issue unless you are set up to be doing partial payments in that manner. So, if you're online and someone's like, "Do bi-weekly, please," please reach out to your lender first, see if they have it as an option. If they do, you know, great, get it set up, then do it, okay? Because you don't want to end up fighting with your lender over this. Like I've seen it where people have almost ended up in foreclosure, and they're like, "But the lender's cashed all the checks," but the lender hasn't applied it to the mortgage because it's never been a full payment, and that's the way their rules work. I know it sounds crazy, but look, I'm not here to tell you, you know, "Yes, it's crazy, they should change it," I'm here to tell you, "Hey, it's crazy, I agree, and you need to protect yourself 'cause that's what we care about, you need to protect yourself," okay?
What's another way you can pay down your loan quicker? Okay, so we've talked about paying an extra amount in principal every single month. You know, look, if rates go down, let's say right now you're at 7%, and rates go down and you really want to get in a 15 year, and those rates are looking great, cool, great, or just refinance into another 30, you know, whatever you're more comfortable with. I don't love doing 30-year loans if you only have 10 years left on the loan because you're restarting the entire term, so sometimes lenders will pitch you and they'll be like, "Oh my gosh, your payment's $1,000 now. I can drop it to $200," and it's like, "Well, wait a second, it's $11,000, but you only have two years left." If they're refinancing you, they're adding another 20 years, and yes, your payment's $200, but you're going to pay it off in 30 years now instead of 10, so really watch out for that. I think it's important that we're always keeping in mind how much longer is left on your loan, and look, during 2021, 2022 when rates were low, we would definitely have clients where maybe they only had 10 years left, and we were doing 15 years because the rate was lower, but then I was telling them what payment to be doing, you know, in order to hit their goal. And look, that's something a lender is happy to do. If you guys are ever working with me and you're like, "Okay, Jen, I know you've got me a 30, this is exciting. If I want to pay it off in 20 years, how much extra should I pay every month?" Easy, we can do that. It's not a problem, and there's calculators online as well if you have already closed a mortgage and you're trying to figure out how it works. There's a lot of great calculators online that will help you figure this out.
The other thing to know is big payments towards principal and how that works. So let's say you get, let's say your mortgage is $400,000, and you get a $100,000 bonus. Wow, that's huge, and you're like, "I'm going to pay down that mortgage."
Okay, great, so you definitely want to talk to your lender, or if online, you know, do that $100,000 payment, make sure it's going towards principal. Now here's something really important to note, because sometimes people want to make these huge payments because they want a lower monthly payment, that's different. So if you want to make a huge payment towards your mortgage to get the payment down, you would have to recast your loan.
You can't do that with VA, you know, conventional loans, maybe it's going to depend on who owns the loan whether or not they can do that, so it's really important that you guys realize if you do, because sometimes people will be like, "Oh, I'm going to buy this house, and then I'm going to sell my house, and then I'm going to put $200,000 on the new house, and then that will lower the payment," and it's like, "Whoa, whoa, whoa, like there's no guarantee that they're going to recast that, and if it's a VA mortgage, they're not.
So you would have to refinance at that point in order to get a lower payment. You know, so you really want to make sure you're talking to the lender about this because if you're a conventional mortgage, I don't want you guys refinancing just because of this video. I want you to talk to your lender about what you're trying to accomplish and see what they say. Okay, really important. So look, the key is this: with most loans in America right now, you can pay it off if you won the lottery tomorrow, you can pay it off with no prepayment penalty. If you have extra money every month, you know, and sometimes people are like, "Well, I don't have a lot, but I've got, you know, like when I first started paying extra principal, it was just kind of like, 'Okay, you know what, instead of going out to dinner, you know, once a month, I'm going to put that towards my mortgage,' right? Just start there, you know, start with $20, start with $10, you know, and as you get more comfortable, increase it, okay? Because here, like look, you don't want a mortgage forever, and yes, I'm a mortgage lender, but I don't want you in a mortgage forever.
But that is a stuff you want to consider, so it doesn't have to be these huge amounts monthly, it could literally be an extra $10, and when you start playing with these calculators online, you'll see, wow, that $10 has a lot of power. So as always, I hope this video was helpful. If you have questions, comments, if you've done this, you know, drop it in the comments, feel free to reach out. I'm here to support you. But I just wanted to make sure you guys knew about a couple of those things so you don't end up trying to do the right thing and ending up with a headache. Thanks for watching.
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