When you have a little extra money, one of the best things you can do for your financial future is to pay your mortgage off faster. Here are some great ideas on how to do this.
The biggest expense in your monthly budget is probably your mortgage payment. If you could find a way to pay off your mortgage faster, you would save thousands of dollars in interest and you would reach the peace of mind of owning your home outright much more quickly. Here are a few tips about how to pay off a mortgage faster.
1Find Ways to Increase Payments Early In the Mortgage
Any extra payments that you make early in the life of your mortgage will save you more in interest than extra payments you make later.
In the first seven years, the principal balance isn’t reduced very much because most of your monthly payment goes toward the interest on the loan.
People are usually surprised when they make several months worth of payments, worth several thousand dollars, and find out that their principal balance only reduced by a few hundred dollars.
The best way to get started paying off your mortgage faster is to find ways to prepay early in the life of the loan.
2Make Extra Lump Sum Payments to Pay Your Mortgage Faster
Do you get a bonus at work every year? Do you get a refund check at tax time? Instead of spending that extra money on things you don’t really need, apply it as a lump sum extra payment to your mortgage.
3Focus On Smaller Payments Each Month
Another way to pay off a mortgage faster is to make small payments each month. If you obtain an amortization schedule, you can easily see how much your principal balance is being reduced when you make each payment. When you write the check for this month’s payment, check the schedule and find out how much the principal balance will be reduced for next month. If you consistently include that small amount, it will be like making an extra payment at the end of the year.
4Make Bi-Weekly Payments, But Be Careful
If you receive a paycheck every two weeks instead of once a month, you should pay your mortgage the same way.
This is one of the fastest ways to pay off a mortgage faster and it saves you thousands of dollars.
However, if your mortgage wasn’t originally set up as a bi-weekly, it could cost you several hundred dollars to set it up. Instead of paying that fee, handle the bi-weekly payments yourself.
5Make Sure All of Your Extra Payments Are Handled Correctly
The purpose of any kind of an extra payment is to reduce your principal balance, however it is very easy for this to be handled incorrectly by the mortgage company. Usually, if they aren’t given any instructions on how to handle the extra money, they will apply it toward the next monthly payment that is due.
If you are making extra payments, it would be helpful to have this extra money be separate from your regular monthly payment. You can even write a note in the memo line of the check telling them to apply the amount to the principal balance. It’s also a good idea to occasionally check to make sure your previous payments were applied correctly.
While most people dream of the luxury of being able to make extra payments on their mortgage, there are actually a few cases where it isn’t a good idea. If you are planning to moving, it is usually better to save that extra money to apply to the down payment of your new home.
Another example of when it might not be a great idea is if the interest rate on your mortgage is very low and you have other investment opportunities that would allow you to earn interest at a much higher rate. However, this only applies if you have the discipline to actually invest that extra money.
What Do You Think?
Have you had any success in paying your mortgage off faster? Do you have any tips that could help others?
