Tips on How to Pay Your Mortgage off Early
Homeownership is a major milestone, but can you really say you’re a homeowner if you’re still paying off your mortgage?
Most people aren’t able to pay for a home in cash. Instead, they have to take out a mortgage to finance their first house. While this solution is less than ideal, it’s often the only option.
Home mortgages typically take decades to pay off — up to 40 years or more. Meaning, if you decide to move, you’ll have to use most of the money from the sale to pay off the rest of your mortgage. Moreover, paying off a loan for this long means you’ll likely end up paying thousands of dollars more than the original loan amount in interest.
If you don’t want to spend decades paying off your home loan, consider these tips to help you pay off your mortgage as quickly as possible.
Make Biweekly Payments
Making biweekly mortgage is payments can be a great strategy to help you pay off your mortgage early.
The concept is simple: instead of making the full mortgage payment once a month, make half of your monthly payment every two weeks.
First of all, this can make it easier to manage your mortgage payments if you are paid on a biweekly basis. You’ll be able to sync your mortgage payments with your paycheck.
Moreover, since there are 52 weeks in a year, you’ll be making a total of 26 reduced mortgage payments — equal to 13 months of payments.
By making this extra monthly payment each year, you can knock several years off of your mortgage term.
Refinance but Make the Same Payments
If possible, consider refinancing your mortgage but continue making the same monthly payments.
If your financial situation has improved, for example, you’ve increased your credit score, you may be able to get approved for refinancing. Refinancing could lower your interest rate.
Since your interest rate is now lower, the total amount of your loan will decrease. However, if you keep making the same payments, you’ll be able to pay off the principal on your loan more quickly.
This could reduce your loan terms by several years.
Make Larger Payments
This might seem like an obvious one, but you should consider making larger mortgage payments as your income increases.
Some people would advise against this. Since mortgage rates are often fairly low, it might make more financial sense to invest your additional income if you’re able to generate returns at a higher rate than your mortgage rate.
However, if paying off your mortgage quickly is your primary concern, then making increased mortgage payments is going to be one of the best ways to do this.
Be careful, though, not to make higher payments than you can actually afford. But, if making larger payments is a possibility, this could help you save a lot on interest — particularly if your mortgage has a variable interest rate.
Paying off your mortgage early could save you thousands on interest and make moving easier if the need arises. Consider using these tips to pay off your mortgage as quickly as possible.