The idea of paying off your mortgage in full might seem impossible. After all, it may cost you thousands of dirhams. Paying that much money at once may be pretty daunting, unless you have won a lottery.
A mortgage is a long term loan and it can prevent you from retiring early, sending your kids to a good college or even taking a dream vacation. So, just like any other loan, it is good to get rid of your mortgage as soon as possible.
Working with an agent from top real estate brokers in Dubai is one of the best ways to wade through the industry and pay your mortgage early.
Here are some tips to help you pay your mortgage off early:
i. Switch to a biweekly payment
Rather than making one monthly payment, you can switch to a bi-weekly payment schedule and make a half-sized payment every two weeks. For instance, if you pay AED 2000 a month, you can commit to AED 500 every week. This will have a similar impact as the monthly plan. However, at the end of the year, you will have 13 full-sized payments instead of the normal 12. This is an extra payment that will help to reduce the overall payment.
ii. Make extra principal payments
Most lenders allow customers to make an extra payment marked as principal only. This payment goes to pay only for the principal instead of both the principal and the interest on the loan.
According to top Dubai real estate agencies, paying down the principal early will not only save you some interest charges but will also get you out of several years ahead of schedule.
So, consider making an extra payment every month as an extra principal payment.
You can start simply by rounding off your monthly payment to the next even number. For instance, if you pay AED 1022, you can round it off to AED 1030.
iii. Refinance into a shorter-term loan
Do you have a 30-year mortgage? You can refinance it to a 15-year loan to shorten the period. In fact, you can get better interest rates as well. This is because a shorter loan term comes with lower interest rates. So, play around with the numbers and see how you can refinance your loan.
iv. Put your windfalls into the mortgage
If you received a raise at work, you can consider putting all the extra income into your mortgage.
Other potential windfalls include bonuses from work, successful garage sale, etc.
If you use even part of the money as an extra payment on your mortgage, you can significantly reduce the payment period.