How to Pay Off Your Mortgage

The last decade has experienced an upward and downward slope in finance. People have been forced to move out of their homes because they couldn’t pay their mortgage. Companies have closed down because they couldn’t pay their debts and couldn’t keep up with the increasing costs. People who can’t pay their debts fall for the biggest trap by paying only the minimum and the money left is charged with additional interest.

Mortgage refinancing is when they person pays off an old debt by acquiring a new loan. Usually, the person will use his mortgage as security. This might sound like a good payment scheme but if you have bad credit and no financial means at all then this could spell disaster for your house. To avoid such a problem, there are tips to follow if you decide to refinance your mortgage.

The first thing you have to do is to study your expenses and how much you earn. Compute and see if your old debt consumes most of your salary. It is hard to jump into refinancing, especially if you don’t need it at all. The next step that you have to do is to compute the payable amount. The payable amount includes the principal amount of your loans, the interests, and the late charges for payments that aren’t paid on time. The next step after this is to calculate your debt to income ratio. Compute your debt to income ration using this formula: “Total Debt to Income Ratio = Total Debt Expenses / Gross Income”. This formula lets you know how much of your monthly income goes to the lender of your refinancing.

By doing so, you will find out if you can get your refinanced loan and see if you can pay the installments easily. Ideally, your ratio should not exceed 25% of your income. The last tip applies to you if you are able to get your loan. Open a savings account and contribute extra cash to that account. This account will serve as your payments for the loan.

Should you increase your mortgage payments where possible?

Yesterday's news that interest payments on mortgages are now at their lowest percentage of household income in 35 years is obviously good news and will take some pressure off stretched budgets in the UK. However, if your mortgage payments are now lower as a percentage of your household income than ever before, is it time to look at increasing your mortgage payments to take advantage of low interest rates?

The simple answer to this question is that if you have significant spare capital then paying down your mortgage will save you money in the long-term. However, mortgage interest rates are relatively low at this point in time but other debt interest rates including credit cards and personal loans are significantly higher. While each and every person will have a different background and a different profile, in a perfect world you should be paying off high interest debt before low interest debt because of the other the added expense this will incur in the long-term.

It is also worth remembering that whether you choose to pay down your mortgage or reduce your credit card balance, you will be unable to recall this money at a later date if you find yourself short of funds. While professional financial advice should be sought at all times, unless you have a buffer i.e. additional savings, you will need to think long and hard about spending all of your savings on reducing your current debts.