If you have reached this stage and are having difficulty keeping up with your payments or simply want to get rid of this debt as quickly as possible, how about checking out some valuable tips on the subject? Continue reading and find out how to keep your financial life up to date!
What are the advantages of paying off a mortgage loan early?
As you read through these topics, you will realize that paying off your home loan early can require much more control and rigor with your money. But believe me: all the effort is pleasantly rewarded with a drastic reduction in debt payments and, consequently, in the interest rates. So, how about keeping an eye on some of the advantages that this extra focus can generate for you and your family? Let’s go!
Debt term reduction
The first major advantage is that the term of your debt will be significantly reduced. In general, it is possible to simply pay off the entire loan at once, getting rid of it permanently, or resort to other methods, such as amortization. In the case of amortization, in addition to paying the installment for the current month, it will be necessary to make a larger contribution and “discount” part of the outstanding amount from the last installment.
This is an excellent way to avoid paying the interest charged on that amount of the amount, reducing the total time of the debt. In practice, even if you do not have the contribution of a full installment, this simple habit will “take away” months and months from the total amount of your debt. In other words, a loan that should be paid off in 30 years, for example, can be paid off in half the time — or in an even shorter period.
Decrease in interest payments
By saving up as much money as you can to pay off the loan in full or pay it in larger installments, you will also eliminate a good part of the interest from the equation , as mentioned. In other words, the initiative will help to reduce the total time of the debt, but it will also reduce the amount. Many people underestimate the power of paying off a loan, but are surprised when they discover that this measure can “remove” a good part of the interest initially negotiated. Furthermore, of course, with a “cheaper” debt, paying off the entire debt becomes even simpler, right?
More financial peace of mind
If you have chosen to take out a loan, you have probably carefully analyzed how much you can afford in terms of monthly installments, right? Therefore, paying off this debt in advance will require you to re-educate yourself financially, to “squeeze” all the bills and really “squeeze blood out of a stone” to have a little extra money left over at the end of the month and go beyond the amount you committed to.
We know that, in practice, it is not easy at all. In fact, the initiative requires discipline, cutting expenses, seeking extra income and a great financial effort. Looking at it from this angle, paying off a mortgage is not exactly easy, right? However, you can see the same situation from another perspective. An extra effort spent for a certain period of time to pay off a bill that drains a large part of your finances every month will help you quickly get rid of this obligation.
In other words, at the end of this whole process, you will be out of rent, you will no longer have to worry about the loan installment and you will be able to use all this “extra” money to make new dreams come true, such as:
- the purchase of a car;
- the formation of a financial reserve;
- application in long-term investments;
- a family trip etc.
How to pay off a mortgage early?
As we have seen, taking out a mortgage early is not rocket science. In fact, going down this path can be much easier than spending the next 20 or 30 years of your life maintaining this financial obligation. So, how about taking a look at the suggestions we have put together to help you in this mission? Check them out below!
Use your savings to pay off debt
You may already have a good amount of money saved up, whether it’s the proceeds from selling your last car or a savings plan you’ve been saving for years. In this case, you can use this amount to make an offer to the financial institution — even if the amount doesn’t cover the total amount of your debt. However, when you propose paying off a debt, you have the chance to evaluate the amount taking into account that the interest that would be charged on the balance still owed would no longer exist.
Therefore, the total amount calculated would be much lower. Many people fail to make an offer precisely because they believe that the money doesn’t cover the amount owed. However, if you have funds saved up (that aren’t part of your emergency fund ), it may be worth making an offer and analyzing the conditions.
Amortize the installments
Amortization — already mentioned — is an alternative for those who manage to improve their financial situation and eventually pay more than the installment amount of the financing. In this case, in addition to paying off the current installment, you will have the option of discounting the total amount of the debt at the end, as mentioned. With this, we have the same circumstances as in the previous hypothesis: without interest, the total amount of the debt decreases.
Therefore, if you have a financing with an installment of R$300, for example, and, in a specific month, your income experiences a ” boom ” (in the best sense of the word, of course), it is interesting to take advantage of it to reduce the total amount owed. After some installments are paid off, part of the interest also ends up disappearing. Thus, you speed up the repayment of your debt considerably. In other words, a financing that lasted decades can become a debt that can be paid off in just a few years.
Use your FGTS
There is another way to reduce the amount of your installments and pay off your mortgage much faster: using your FGTS. In fact, we are talking about a right guaranteed to all workers who work under the CLT regime. The amount can be withdrawn in specific situations, such as when the person decides to buy a property. In fact, the best part is that you can use the fund to cover up to 80% of your outstanding balance or pay off a total of 12 installments. This option would certainly greatly reduce the term and amount of your installments, right?
In addition, you can resort to this measure again every 2 years. In other words, if you use your FGTS to pay off your mortgage today, you will be able to do the same thing in 24 months. This is a perfect alternative for those who have already exhausted all other options — such as saving during the month, earning extra income and paying off the installments — but still want to speed up the process one more time.
Put your 13th salary in the account
Using your 13th salary can be a great way to speed up the payment of your mortgage, especially if you use the full amount to pay off the debt. Since the installment is equivalent to a maximum of 30% of your income, this means that just one 13th salary will cover at least 3 installments.
In fact, if you consider that the amortization “removes” those last installments, at the end of the debt, eliminating the interest related to them, you will realize that, in fact, the bill will be reduced by much more than just 3 months. So, do a simulation and see if this is a good alternative or not for your current situation.
Plan your finances and control your expenses
This is definitely the tip that will help you get out of trouble during the term of your mortgage and, consequently, save money that you can use to pay off your debt. Our suggestion involves planning your finances month by month and strictly controlling your expenses. This way, you will probably have some money left over that you can use to pay off an extra installment. So, if you want to speed up the term to pay off your mortgage, consider starting by doing a sort of sweep of your current expenses. A good idea is to eliminate everything that is not essential to you for now, such as:
- subscriptions to unused services;
- Internet, phone and gym plans that are above your actual needs;
- excessive spending on delivery;
- waste in water and energy consumption, etc.
This temporary change in your lifestyle can help you save money. With your budget less compromised, you can pay for your purchases and expenses in cash, avoiding future debts and even use the remaining amount to pay off your mortgage.