July 9th, 2012 3:11 PM by Eileen Denhard
Your house is likely your biggest investment, and it’s also likely your biggest expense, which is why you may be feeling financially strapped. As we celebrate freedom with cookouts and family gatherings on the 4th of July, why not think about freeing up some cash flow to alleviate the stress and achieve greater financial independence?
Here are some steps to consider taking:
With mortgage rates at historic lows, if you haven’t already refinanced your existing loan (and millions of qualified, creditworthy, gainfully employed homeowners have not), consider doing so — particularly if you’re planning to stay in your home for at least three more years and can lower your current interest rate by a half to three-quarters of a percentage point. Want to see how much you could save firsthand? Try Zillow’s refinance calculators on the Web, or download our Android or iPhone mortgage app.
Given that rates are as low as they are, it’s now a bit easier to absorb the higher monthly payments that accompany shorter-term mortgages, even if you’re on a relatively tight budget. And not only will you pay less interest on, say, a 15-year mortgage (rates are currently at 2.85 percent) as opposed to a 30-year (rates are currently at 3.44 percent), but you can build equity at a faster rate and focus on other things, such as preparing for retirement.
By making 26 half-payments instead of 12 full payments — applied directly to your principal — you will chop off about 6 years on a 30-year mortgage and about 3 years off a 15-year mortgage. Not to mention – you’ll be debt-free years ahead of schedule and will have saved tens of thousands of dollars over the life of your loan.
Assuming you don’t want to refinance, don’t qualify or can’t afford the closing costs/upfront fees, and are looking for a more flexible option, consider making extra payments to your principal. This will reduce your interest and shorten the length of your loan. Just make sure you won’t have to pay prepayment penalties.