If you want to pay off your mortgage early, keep reading!
Paying off your mortgage early can feel like a distant goal, but it’s more achievable than you might think! With patience, determination, and the right approach, you can save thousands in interest, gain financial freedom sooner, and even reduce your stress levels.
Whether you’re looking to speed up your payments or make a few financial changes, you’re at the right place. By applying even one or two of these tips, you’ll see how small changes—like making extra payments, cutting unnecessary costs, or refinancing—can have a big impact on your loan term.
Paying off your mortgage ahead of schedule means more money for your savings, investments, and future dreams, and who doesn’t want that? So, if you’re ready to take charge of your finances and unlock the path to being a happier and more relaxed homeowner, here are all the tips you need! Are you ready? Let’s begin!
1. Refinance your mortgage
If you want to pay off your mortgage early, you can talk to an expert about refinancing it. When you do so, you replace your existing mortgage with a new one and on different terms. However, to be eligible, your lender has to do a couple of things. They’ll figure out your loan-to-value ratio by taking the total amount you still owe on your mortgage (along with any other loans tied to your home) and dividing it by how much your property is worth at the moment. It sounds complicated, but it’s not and it can help you a lot!
With this technique, you might opt for reducing your loan term a lot but talk to an expert about this because it’s different from one scenario to another.
2. Make an extra payment
In case you have the money, I couldn’t recommend this tip enough! You can pay off your mortgage faster by making an additional payment each year. A single extra payment can help you reduce the term of your loan significantly, so if it’s possible, go for it.
One of the most affordable ways to do this is to pay 1/12 extra each month, so it won’t feel like a huge chunk of money paid at once. For instance, if you have a $900 mortgage payment but pay an extra $75 each month, you’ll have paid the equivalent of an extra payment by the end of the year, which is pretty good.
3. Other additional payments
We’ll keep going with these tips to help you pay off your mortgage faster, but we’re not done yet—those extra payments can make a huge difference! You guessed it: if you want to save money on interest while reducing the term of your loan at the same time, you’ll need to make a couple of extra payments.
Keep in mind that some lenders will charge a penalty for paying off your mortgage early, so check if this is your case or not. If the odds are in your favor, think about these payoff tips.
The first thing you should do is let your lender know that your additional payments should be applied to principal, not interest. Otherwise, they will apply the payments towards your next scheduled monthly payments, which won’t help you reach your goals any faster.
Another tip from experts is to do your best to prepay at the beginning of the loan when interest is the highest. While you might not see it, the majority of your monthly payment goes toward your interest rather than principal. As you already know, interest is compounded, meaning that the total amount owed (principal plus interest) determines the interest payable monthly.
So, before you make any changes, keep in mind that you need to discuss with your lender about this method. You might want to pay off your mortgage early, but do it the smart way!
4. Round up your payments
Another way to pay off your mortgage early is to reduce the term or round it up. For instance, if you have to pay $780 a month, pay directly $800. Long story short, round up to the next highest $100 amount. Even if it’s only a small change that might go unnoticed, little things make the biggest difference in the long run. The most important thing here is consistency. Follow this tip and you’ll pay off your mortgage much faster.
5. Use unexpected income
Sometimes, you might be lucky to receive unexpected windfalls, such as tax returns, holiday bonuses, tips, extra projects at work, or credit card rewards. Since there’s a possibility you weren’t expecting this, you can use the extra money to make an additional mortgage payment. The best part is that it won’t cut into your typical monthly budget.
6. Try the dollar-a-month plan
If you’re fortunate enough to see your income steadily rise, even by a little, you’ve got a great opportunity to pay off your mortgage faster! A simple and effective tip to take advantage of is the dollar-a-month plan. With this method, you’ll make gradual, manageable increases to your payments, helping you chip away at that mortgage sooner than you think.
All you have to do is increase your payment by $1 per month. For example, if you’re used to making regular $900 for the first month, raise to $901 for the first month, $092 for the second, and so on. You might shorten the length of your mortgage by eight years if you were to take out a $150,000 loan with a 30-year, $900 monthly mortgage and a fixed interest rate of 6%.
7. Make biweekly payments
If this is possible, you can pay off your mortgage faster by making biweekly payments. Keep in mind that this tip might not work for everybody because not all lenders allow this type of payment instead of the regular monthly ones.
You may need to apply for this option, so ask your lender. If they charge extra fees for biweekly payments, it could end up costing you more than it saves. A better option is to make one extra payment each year instead. It has the same effect as biweekly payments—essentially giving you an extra mortgage payment by the end of the year—without the added fees!
Making biweekly mortgage payments can help you pay off your mortgage faster and reduce your overall borrowing costs, similar to making additional payments toward your principal. A biweekly payment schedule can also make it easier to manage your finances, as it aligns with the pay schedule of many hourly and salaried employees.
Why should you think about paying off your mortgage faster?
We’ve talked about different methods to pay off your mortgage faster, and while we’ve said that it allows you to be more relaxed, it’s time to dive deeper into the subject. One of the main reasons homeowners decide to do this is because they can save money on interest that could add up to thousands throughout their loans.
Moreover, this helps you become a free homeowner, and you’ll be prepared and more financially secure even if a tragedy strikes, like an income reduction or a job loss. However, don’t feel pressured to pay off your mortgage faster, because this isn’t available for everyone. Unless you don’t use your emergency savings to pay off your mortgage, you’re good to go.
What do you think about all these tips? Did you find any of these helpful? If you want to dive deeper into the subject, I recommend you check out this book, and if you prefer to set some money aside, here’s a cute piggy bank for you!
Until next time, here’s another great post to check out: 15 Hollywood Movies with Life-Changing Financial Messages
