Las Vegas Real Estate: Pay Down Your Mortgage Fast
After the initial excitement of buying a home here in Las Vegas wears off, the number of years you’ll be tied to your mortgage can sometimes be a tough pill to swallow. In previous blog posts I’ve been a strong advocate of the 15 year mortgage, but that’s not necessarily for everybody. While I’m a big fan of 15 year mortgages, they do require a bit more money every month and that’s not always feasible for most Americans.
So what are some of the tricks to help pay down your mortgage quicker here in Las Vegas or Henderson?
I read this years ago and it stuck: Pay yourself first. I apply this thinking to long term retirement accounts, everyday savings accounts and my home. This pertains to anything that takes care of you first and foremost; both immediately and later down the road. (And no, this does not mean a big screen TV.)
Use extra money to pay down your mortgage
If you receive a tax return, use that extra money to pay down the principle on your mortgage.
If you receive a raise, continue to live on your previous salary and use the additional income to pay down your mortgage. An extra $200 a month is $2,400 a year, an additional $300 a month is $3,600 a year. It all adds up. On average, paying an additional $1,000 per year can trim up to seven years off of your mortgage. Of course, this also lowers the total interest you pay out as well. Even seemingly small monthly additions towards your principle balance add up over time. In the long run it certainly beats splurging on electronics or the temporary satisfaction of dining out.
Make extra payments as early as possible
The first few years of mortgage payments, for a thirty year mortgage, go almost entirely to interest. In fact, the amount paid to principle does not overtake the amount paid to interest for nearly 10 years!
For this reason, if you can, you should pay extra during the first several years of your mortgage. You’ll begin to pay down the principle faster, which is tremendously beneficial. This can be done by adding as little as $100 per month from the very first payment.
Consider a twenty or even fifteen year mortgage
The thirty year loan is great for the first time home buyer, but once your finances have become more stable, you really should consider a shorter term.
Aside from paying off your mortgage quicker, the savings on interest payments is immense. For instance, if you bought a home in Summerlin for $350,000 the interest paid after 30 years is $288,000. On a 20 year note the interest paid would be $159,000, while a 15 year term would be $137,000. As you can see, a 20 year mortgage provides the buyer a significant savings of $129,000, while a 15 year loan saves the buyer $151,000 over the course of the loan!
While a fifteen year loan payment may be too high, the twenty year mortgage may be more attainable. Given the heft of savings, it’s certainly a no-brainer. Think of it this way: You will pay off all of a 15 year fixed loan and 90% of a twenty year loan, before you pay off HALF of a 30 year fixed loan.
Pull money from investments?
In some cases it may be worth it to pull money from your investments to pay off a mortgage. There are many factors to consider though. What is your current mortgage rate? How much time is remaining on the loan? How does that compare to the return on your investments? If you financed your home with ultra low interest rates, then it is probably not worth it to break into your investments. There are also tax implications to this move, especially if you are tapping into your retirement accounts to pay off the home. It’s not something I would do personally, but it may make sense for some people. Every scenario is different.
There are many ways to pay down your home in Las Vegas, while trimming off years and saving thousands in the process. It requires both a plan, and the financial discipline to implement it. There is no one size fits all, or absolute right way for everyone- everyone’s situation is different. Put your ideas down on paper and make a plan!