6 Ways to Pay Off a Mortgage Faster
Your mortgage is probably the biggest debt you have and the largest bill you pay each month. Sure, it’s considered “good” debt, but that doesn’t mean that paying it off faster isn’t beneficial.
If you focus your efforts on paying your mortgage off, you’ll be able to rest a little easier. As an added bonus, you’ll save yourself tens of thousands of dollars in interest.
Think about using these methods if you want to be mortgage-free faster.
Shorten the Term
To manage the monthly payment, a lot of people take out a mortgage with a 25-year term. If you make the minimum payment each month, it takes 25 years to pay off.
However, if you choose a mortgage with a 10, 15, or 20-year term, you’ll be forced to pay it off more quickly. Note that a mortgage with a shorter term is going to have a higher monthly payment, so you need to be certain that this is well within your budget.
Pay More than the Minimum
If you want to play it a bit safer, you could simply pay more than the minimum amount each month on a mortgage with a longer term. This gives you a bit more flexibility.
You can pay the minimum balance if you’re going through a rough patch or racking up the bills during the holidays, while still staying focused on paying the mortgage off faster. It’s a win-win situation.
To do this, ask the bank for the form that changes how much money they’re authorized to take from your account. Choose something that’s affordable for you, whether it’s only $20 extra or $500.
Make Bi-Weekly Payments
Bi-weekly payments are an excellent solution for those who get paid on a biweekly basis. Rather than paying a full mortgage payment at the beginning of each month - a move that doesn’t always line up with payday - you agree to pay half of the mortgage every two weeks.
In most cases, this is easier on the budget, but you’re also getting big savings on your mortgage. Instead of making 12 full payments each year, you end up making 26 half-payments, which totals 13 full payments.
You get one extra payment, but it doesn’t feel like you’re paying that much extra. Most banks are aware of this savings “trick” and can help you set up your payments in this fashion.
Make a Lump Sum Payment
Whenever you get some extra money, such as a tax refund or a holiday bonus from your company, you can apply that extra money to your mortgage. Many people find that doing this allows them to pay an extra $1,000 or more each year.
All of this extra money will go straight toward the principal balance, so it’s best to put it all toward the mortgage at once rather than spreading it out by increasing your monthly payment.
Rent Out Space in Your Home
This choice might not be for everyone, but many of today’s homes can be built with a completely private income suite in the basement. Depending on the details of the space and your location, you might be able to charge $800 or more each month.
This could be a significant increase in the amount that you pay toward your mortgage each month. And since it’s a brand-new home, you won’t have the same headaches that other landlords have with things regularly breaking down. Research whether or not this might be a smart move for your family.
Should You Pay Your Mortgage Down Quickly?
Paying off the mortgage is a noble goal, and implementing any of our tips should help you do that without a lot of extra trouble. However, we feel that it’s important to note that mortgages typically have pretty low interest rates.
If you have other debts that have high interest rates, like credit cards or auto loans, it’s smarter to focus your efforts on paying those off first. You could still put an extra $50 or so toward your mortgage, but any substantial efforts should only come after you’ve paid off all other debts.
Because of the way that interest on a mortgage works, paying even a little bit extra can make a pretty big difference in how much interest you pay overall. This is especially true in the first few years of owning your home when a larger portion of your monthly payment goes toward interest.
We think you’ll agree that finding ways to increase the amount of money you put toward your mortgage is worth the effort of any small sacrifices you have to make.
