![]() Is the house payment no more than 25 percent of my net salary?Ĭan I afford to choose a 15-year, fixed-rate mortgage?Ĭan I afford to pay the utility and maintenance costs as long as I own the home? Will I be able to pay the closing costs and moving expenses with cash? Ramsey recommends that you be able to answer all of these six questions with a “yes” before committing to a mortgage - otherwise, you should wait to purchase a home:Īm I free of debt with three to six months of living expenses saved?Ĭan I make a 10 to 20 percent down payment? ![]() ![]() Don’t Bite Off More Than You Can Chewīeing financially ready to take on the cost of homeownership is paramount. The only advantage of the VA house loan is that you don’t need a down payment, which Ramsey considers a trap. They’re usually more expensive than conventional loans, according to Ramsey. ![]() Ramsey doesn’t recommend that house hunters seek VA loans, which are backed by the Department of Veterans Affairs. In any event, you’ll have successfully reduced your debt. You might be able to pay cash for a new house, and even if you do need to get a mortgage, it will likely be small - and a smaller balance means you can pay it off sooner. Downsize Your HomeĬonsider selling your home before paying it off - if you have enough equity in it - and using your profits to buy a smaller, less expensive one. Either way, you’ll have more money each month even sooner to invest for retirement, save for college or put toward some other goal. Or, if refinancing your 30-year mortgage isn’t feasible, pay toward your mortgage like it’s a 15-year mortgage. Once you get into that 15-year-mortgage, increase your payments, if possible, to pay it off in, say, 10 years. Not only will you pay off a 15-year mortgage in half the time, but you’ll also pay much less in interest. One recommendation Ramsey makes is to convert your 30-year mortgage into a fixed-rate, 15-year home loan. You’ll also save more than $28,000 in interest. That little bit extra will save you from paying more interest than you have to.Īlso See: 7 Things to Consider Before Paying Off Your Mortgage Earlyīringing a brown-bag lunch to work every day isn’t exactly glamorous, but it will save you money you can put toward paying down your mortgage - to the tune of $1,200 a year - and, using the same example mortgage as before, enable you to pay it off three years early, according to Ramsey. When you can’t afford that extra payment, just round up your payments so you’re paying at least a few extra dollars each month, and increase your payment when you get a raise or bonus. This bi-weekly payment schedule adds up to one extra payment each year, saving you $24,000 and four years off your mortgage. Make one extra payment each quarter to shave 11 years and nearly $65,000 off your mortgage.ĭivide your payment by 12 and add that amount to each monthly payment, or pay half of your payment every two weeks. Here’s how extra payments would affect a $220,000, 30-year mortgage with a 4 percent interest rate: Once your mortgage’s principal balance is 80 percent of the original value of your home, you can request removal of your PMI. Plus, with each extra payment, you’ll be closer to removing private mortgage insurance faster from your loan if you have it. When you throw extra money at your monthly mortgage payment, more of each payment after that goes toward your principal balance. Here are Ramsey’s tips for how to pay off your mortgage early. His organization, Ramsey Solutions, counsels people on getting out of debt by following the Dave Ramsey Baby Steps - the sixth of which is paying off your mortgage early. Completing a mortgage payoff early could save you a bundle of money, not to mention years of not having a big payment hanging over your head each month, according to Dave Ramsey, financial guru, author and host of “The Dave Ramsey Show.” ![]() The amount you have to finance through a mortgage loan and the long-term commitment you’re making to real estate can be overwhelming. Mandatory Credit: Photo by MARK HUMPHREY/AP/REX/Shutterstock (6378435g)Dave Ramsey Financial talk show host Dave Ramsey works in his broadcast studio in Brentwood, Tenn. ![]()
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