Got a Cash Bonus? Put Extra Money Toward Your Mortgage
With the end of the year right around the corner, some employees are looking forward to getting a cash bonus from their employers. If you aren’t expecting a bonus, maybe you receive free money or windfalls at other times of the year.
Common uses for this money can include a shopping spree or a vacation. But instead of spending all of this cash on fun stuff, consider how this money can benefit your home plans.
1. Make an Extra Mortgage Payment
If you’re committed to paying off your mortgage early, making several extra mortgage payments throughout your loan term can reduce the amount you pay in interest over the life of the loan and help you pay off the balance sooner.
If you typically get a year-end bonus or a sizable tax refund every year, take a portion of this money and make an extra “principal only” payment on your home loan. Submitting an extra payment at least once a year could knock as many as five years off your mortgage term.
2. Increase Your Down Payment Fund
Any extra money you receive during the year can also go toward beefing up your down payment fund and helping you purchase your first home.
Today, you need a minimum of 3.5% down for an FHA home loan and 5% down for a conventional loan. Saving up a down payment can be challenging if you don’t have a lot of disposable cash. But if you commit to saving bonuses and any other free cash you receive during the year, you can build your down payment fund faster and purchase a home sooner.
Once you’ve saved enough, our loan experts at Cherry Creek Mortgage can sit down and discuss the best home loan to make your dream a reality.
3. Refinance and Pay Closing Costs With Your Bonus
Refinancing your mortgage may allow you to lower your current mortgage interest rate and potentially reduce your mortgage payment. Some people, however, put off refinancing because it creates a new mortgage loan and involves closing costs.
Although you can wrap closing costs into your new mortgage balance, this method may also increase your principal balance. If you use a work bonus, a tax refund or another windfall to pay all or some of your refinance closing costs, you can possibly keep your mortgage balance roughly the same (assuming you don’t cash-out your equity).
4. Put the Money Toward Home Improvements
Home improvement projects can increase the value of your property, but some renovations are costly. To avoid completely draining your personal savings account, use some of your equity to fund updates to your kitchen and bathrooms, or put the money toward other improvements. A remodel can modernize your space and increase the functionality of your home, helping your property command a higher sale price once you are ready to sell.
There’s strong temptation to spend "free" money on vacations, shopping and other non-essentials. Even though this is your money and you can spend it however you want, don’t overlook the benefits of putting this cash toward your home.
Whether you’re looking to purchase, refinance or renovate, our loan experts are happy to discuss your mortgage needs. Give us a call today.