How to Pay Off Your Mortgage Faster
Mortgages can often feel like a seemingly never-ending expense that homeowners have to deal with. A lot of people sign up for a mortgage not knowing how long it will take them to pay it off, only to discover that it takes much longer than they had anticipated. Fortunately, there are several ways that homeowners can pay off their mortgages more quickly. In this article, we’ll explore some proven strategies to help you make a significant dent in your mortgage debt.
Pay a Little Extra Each Month
One of the easiest ways to pay off a mortgage faster is by paying a little extra each month. Every extra dollar you pay helps to reduce the principal balance of the loan, which in turn reduces the amount of interest you’ll have to pay over the life of the loan.
For example, paying an extra $100 each month over the course of a 30-year mortgage could shave off about five years of payments and save you tens of thousands of dollars in interest payments. It’s essential to earmark the extra payments to your principal amount. Most lenders provide the option, but it’s always best to check with your lender before making any additional payments.
Make Bi-Weekly Payments
Bi-weekly payments are another effective strategy that allows borrowers to make an extra payment per year. This payment strategy entails making half your regular mortgage payment every two weeks. By paying every other week instead of once per month, you end up making the equivalent of one extra payment a year.
For example, if you have a $1500 monthly mortgage payment, you could pay $750 every two weeks. This can amount to an extra payment each year, making it possible to pay off your mortgage loan earlier. However, keep in mind that not all mortgage holders offer bi-weekly payment options. You may need to work with your loan provider to ensure that you can set up bi-weekly payments successfully.
Refinance at a Lower Interest Rate
Refinancing your mortgage can be an effective strategy to pay off your mortgage faster. Refinancing is essentially taking out a new mortgage that pays off the original mortgage. By choosing a new mortgage with a lower interest rate, you can decrease your monthly mortgage payment and save on interest over time.
Suppose you have a fixed-rate mortgage with an interest rate of 5% and a loan of $250,000. By refinancing with a new fixed-rate mortgage at 4%, you could save over $40,000 in interest payments over the life of the loan.
Make an Extra Payment Each Quarter
Another effective strategy is to make an extra payment each quarter. This strategy can help homeowners pay down their balance more quickly. For instance, if your mortgage payment is $1,500 per month, you could pay $1,750 a quarter by adding an extra $250 to your payment.
By making an additional payment of $250 per quarter, you could save yourself tens of thousands of dollars over the course of the loan. You can plan ahead by setting reminders using your phone or calendar and budgeting for the extra payment.
Put Your Windfalls into Your Mortgage
Windfalls are unexpected and substantial amounts of money that come your way, such as a tax refund or an inheritance. Rather than splurging on items you don’t need with unexpected cash, consider putting it towards your mortgage instead.
For example, if you receive a windfall of $10,000, you could put it towards your mortgage, reducing the loan balance and monthly payments. By doing this, you’ll save on interest payments over the life of the loan. If you receive windfalls often, you may consider opening a different account strictly for your mortgage related finances.
Consider Downsizing or Renting a Room Out of Your House
Another strategy to consider is downsizing or renting a room or part of your house out. This method may not be suitable for everyone, but if you can do it, it can help you pay off your mortgage faster. When you downsizing, it means moving to a smaller home that has a smaller mortgage balance in a more affordable area.
On the other hand, if your home has extra rooms, consider renting out a portion to tenants. This way, the tenant’s monthly rent can go entirely towards offsetting your mortgage payments. Ensure that your local government permits renting out space in your house.
Round Up Your Payments
Another easy way to pay your mortgage off faster is rounding up your mortgage payments. Rounding up means making payments that are slightly higher than your required monthly payment. Suppose your required monthly payment is $1,500.00 each month. In that case, you can choose to round up and pay $1,600 or any extra amount you feel comfortable with.
By rounding up your payments, you can chip away at your mortgage loan without even feeling it, reducing your loan balance and yielding significant savings on interest over time. Round up to the nearest $10 or $50 increment if necessary.
Conclusion
After considering the tips listed above, you can begin to explore which strategies work best for you. Some strategies, such as bi-weekly payments or round-ups, may be more suitable than others, depending on your circumstances.
Ultimately, people have different lifestyles, budgets, and timelines for repayment. When it comes to paying off your mortgage faster, the key is finding a comfortable payment plan that suits your characteristics.
Remember that no matter which one of the strategies you choose, know that every extra payment adds up over time and can help you save a significant amount of money in interest.
If you have any questions, you can always speak with a financial advisor or mortgage professional who can help guide you in the right direction.
