A mortgage is great because it means you are investing in a valuable asset. At the same time, no one likes to be in debt, and mortgages are heavily indebted. That is why many people want to pay off their mortgage as quickly as possible.
Paying off your mortgage early can take the stress out of you and your family. Giving up a thousand dollars a month bill frees up your budget for things like traveling, more expensive nightlife, and living a fulfilling life in every way. You can also invest this money to take care of yourself in the future.
There are many ways to pay off your mortgage early. While most of them involve finding ways to make additional payments, there are other tips you can use as well. For example, you can change your payment frequency or refinance for a better deal, both of which can be a way to pay off your mortgage sooner without making major lifestyle changes.
Should I pay off my mortgage early?
The first thing you need to do is decide if you want to pay off your mortgage early. You have to see how it affects your life. Would you be positively or negatively impacted by spending the extra money to cut your mortgage for a few years?
Negative impact, for example, can cause your budget to be so limited that you go into debt trying to pay off your mortgage.
Read more: What does a real budget look like?
But if it doesn’t have a negative impact on your daily life and you are going to stay at home for a long time, then this is probably the right way to go. You can take the weight off your shoulders and move on to bigger financial goals.
Decided this is the right option for you? Here are six ways to pay off your mortgage early.
1. Make Biweekly Payments Instead of Monthly Payments
Source: Giphy.com
Making bi-weekly payments is a great way to pay off your mortgage faster than usual. This is because you will end up making 13 full property payments each year instead of 12. That’s one extra payment that doesn’t really impact your budget that much. (Here’s the math: if you cut 52 weeks in half, you get 26 half payments, which is 13 full payments.)
For example, if Jill and Joan have a 30-year fixed mortgage of $250,000 at a 4% interest rate, they can shorten their loan by four to six years by paying that extra payment every year and not making significant changes to their image. life. .
Read more: What percentage of your income should be a mortgage loan?
2. Make additional payments
One of the easiest ways to pay off your mortgage faster is to add one payment each year. If you have a monthly schedule, just make your 13th payment at the end of the year, equal to your other monthly payments.
To achieve this, you don’t have to come up with a lump sum out of thin air. Just set aside 1/12th of your payment every month so that you have the money ready by the end of the year. If your mortgage is $2,400 per month, you will only need to set aside $200 per month to make an additional payment at the end of the month.
Like paying bi-weekly, this single practice can save you thousands of dollars and significantly reduce your mortgage time. And if you save even more than $200 a month, you’ll have a large lump sum to pay off your mortgage. You may even have enough so that you can renew your mortgage, which I will discuss later.
3. Increase the amount you pay on your mortgage each month
Source: Giphy.com
If a full surcharge is not possible for you, remember that every penny counts. Even if you save a few extra dollars every month to apply as an additional payment at the end of the year, it will still help you save money in the long run.
Instead of making an additional annual payment, you can increase your monthly payments. If possible, double each payment so that you pay half the minimum. If you can do this every month, you’ll pay off your mortgage in half the time.
Even if you can only do this a few times during the year, each payment will help. Plus, you don’t have to go all out to reap the benefits of this method.
You can add $100 or $200 per month to your payment, and over time, that will turn into the full payments you just made over time. The point is that you are making additional payments. Doubling is great, but it might not be feasible. And that’s okay.
You want to make sure that you pay off your mortgage within your means. If you are going into debt to pay off your mortgage early, you are not making a smart financial decision and should instead reevaluate your budget.
4. Refinancing at a lower interest rate
Refinancing is when a lender buys back your current mortgage and you start a new mortgage with them. (In some cases, you can also refinance your current lender.) When you refinance, the goal is to shave off the interest on your mortgage. For example, if you have 6% interest on a loan and you can refinance it up to 5% interest on the same loan, you can save quite a lot of money.
Read more: What does a 1% difference in your mortgage rate mean?
Keep in mind, however, that with current interest rates, now might not be the right time to refinance—unless you’re moving from subprime interest rates to prime interest rates.
A good rule of thumb is to refinance when your mortgage drops 0.75%. Until then, you won’t be able to save up enough money for refinancing to make a difference. And keep in mind that since refinancing essentially means getting another mortgage to pay off your current one, you will have to pay for closings and such.
Read more: Should You Refinance Your Mortgage?
5. Renew your mortgage
Recalculating your mortgage when you make a large lump sum and your mortgage is re-amortized. Re-amortization is when payments divided between the principal or loan amount and interest are remeasured.
Basically, your lump sum is enough to make your loan repayment schedule go wrong. Your lender must go back and reschedule the loan to update the principal and interest.
Source: Giphy.com
The rework is good because it will not only reduce the amount of interest you are going to pay over the life of the loan, but also the amount of your monthly payment. Keep in mind, however, that renegotiating your loan does not affect the interest rate or terms of the loan. If you want a lower interest rate, you need to talk to your lender about refinancing.
This will help you pay off your mortgage early in several ways. First, the lump sum payment will go to your director. Every time you pay off your principal, you will see your loan term shorten. But the amortization schedule will also change, which will affect the interest.
This strategy is good if you have received a large windfall such as an inheritance or a large tax return. Lenders typically require $5,000 or more to renew a mortgage.
6. Use Flexible Mortgage Term
Flexible mortgage terms give you flexibility in your payments. You can change how much you pay each month, and in some limited cases, you can miss your payment that month (although we don’t recommend you ever miss a mortgage payment).
This type of mortgage is convenient because you can add extra amounts to your payments without having to pay prepayment penalties, and they can be paid off faster by adding extra amounts to your payment each month.
A flexible term mortgage is a great option if you are self-employed or in a position where you get most of your money at certain times of the year, such as contractors. This allows you to overpay and underpay according to your needs, but if you are in a good financial position, you can use it to pay off your mortgage quickly.
bottom line
Paying off your mortgage early is possible, whether you’re making incremental payments or making lump sum payments. Test yourself to decide if you want to spend extra money this way. If so, decide which one is best for you. Maybe you have a lump sum that you don’t know what to do with, in which case you can renew your mortgage. Or, if you notice that interest rates have dropped, refinance that puppy.
You can even combine methods. Let’s say you refinance a flexible mortgage, then you can also continue to make additional payments on it every month until the mortgage is paid off.
As long as you are smart with your money, it doesn’t matter which method you use. Just keep consistently (or even inconsistently) moving towards your goal of paying off your mortgage early.