Pay Off Mortgage Early — Faster Than You Might Think
Do you dream of the day you’ll own your home free and clear? I do. It seems like “pay off mortgage early” is getting to be a more common goal, too. (At least it’s not unheard of so much anymore.) And there are plenty of ways you can pay off your mortgage early — maybe even faster than you’d thought possible. Here’s how.
Check your interest rate
Rates are still very low right now, so it may make sense to refinance to a lower rate. Don’t just check the major banks either — online banks like ING and credit unions often have very low rates. (For example, we got a great rate with no closing costs a few years back through Pentagon Federal Credit Union.) Just make sure there are no prepayment penalties involved, either on your existing mortgage or the new one.
Consider a shorter term
While a 30 year mortgage is pretty typical, you can choose a 20 or 15 year one instead to speed things up. Although your monthly payments will be a little higher than they would be with a 30 year loan, they’re usually not that much higher. If you refinance to both a shorter term (compared to how long you currently have left to pay) and a lower interest rate, you’ll really speed things up.
Pay extra on a regular basis
Sending even a little bit extra each month toward principal will reduce the amount of interest you’ll pay over the life of your mortgage, and it’ll cut time off your loan. It’s tempting to get a 30 year loan with the intention of paying it off in 15 or 20 years by making the larger payments. At least, that’s one method I tried in the past. But I noticed that with that method, something always came up, and I never ended up making the larger payment.
If the idea is to pay extra, why not just lock in the extra amount and shorter time period? Of course, you can also eliminate the temptation to skip the extra amount by having the extra amount automatically paid to principal each month. Many lenders will allow you to set up automatic payments that include an extra amount.
Pay extra on an irregular basis
Even if you just send in extra amounts here and there, you can cut a significant amount of time and interest off your mortgage. You can do this painlessly sending bonuses, unexpected income, tax refunds, and raises to the mortgage.
Don’t move, and don’t refinance to “take out equity”
Somehow it’s also become the norm to “move up in house” — even if you wouldn’t otherwise have a need to move (such as for a job change). Even if your family size increases, you probably don’t really need to move. It may be nice to have a larger house, but it’s going to be a whole lot nicer to have a paid forhouse.
And while refinancing to “take out equity” isn’t as common anymore — mainly because not as many people actually have equity in their homes — it can still be a temptation. But moving and taking out equity do the exact opposite of what it takes to pay off your mortgage faster.
Work extra and cut expenses
When you’ve got an audacious goal like “pay off mortgage early”, one sure way to get there is to commit to doing so, and then to work like crazy. Work extra and cut expenses to generate extra cash to send to the mortgage — as often as you can. That’s the method we’re using, and it’s making a HUGE difference.
Add your mortgage to your debt snowball
If you’re paying off other debts too, you can add your mortgage to your snowball. Typically your house will be the last item in your snowball (since the debts are usually listed from lowest balance to highest balance, and mortgages are usually pretty big). But once you get to the mortgage, you’ll have all the money you had been sending to your other debts to apply to your mortgage each month, and it’ll make big dent quickly.
When you’re looking to pay off your mortgage and stay out, you’ll may come across “methods” that sound too good to be true. You know what they say about things that sound too good to be true, right? They usually are.
The best way to pay off your mortgage early is to keep right on sending as much money as you can to it, not to use complicated schemes that will end up costing you money you could have applied to your debt instead.
Your mortgage holder may send you an offer that lets you make biweekly payments. Biweekly payments are a good way to reduce the balance on your mortgage faster, because you’re essentially making one extra payment a year. However, if there’s a fee involved in doing so, just make that extra payment manually yourself instead. You could even send what you would have paid in fees to the mortgage to speed things up still further.