A mortgage is often the biggest debt that most people will ever have. For many homeowners, paying off their mortgage early is a major financial goal. By paying off your mortgage early, you can save thousands of dollars in interest and free up more of your income for other goals, such as retirement savings, travel, or paying for your children’s education. In this article, we’ll discuss tips and strategies for paying off your mortgage early.
1. Make Extra Payments
One of the simplest ways to pay off your mortgage early is to make extra payments. Making extra payments, even if it’s just a little bit each month, can have a significant impact on your mortgage payoff timeline. Every dollar you pay over your required monthly payment goes directly toward reducing the principal balance on your mortgage.
Here’s an example: Let’s say you have a 30-year mortgage with a principal balance of $200,000 and an interest rate of 4%. Your monthly payment would be $955. If you were to make an extra payment of $100 each month, you could pay off your mortgage 5 years and 2 months early, and save over $27,000 in interest.
2. Refinance to a Shorter Term
If you have a long-term mortgage, such as a 30-year mortgage, consider refinancing to a shorter term, such as a 15-year mortgage. While your monthly payment will likely be higher, you’ll pay off your mortgage much faster, and you’ll save thousands of dollars in interest.
Here’s an example: Let’s say you have a 30-year mortgage with a principal balance of $200,000 and an interest rate of 4%. Your monthly payment would be $955. If you were to refinance to a 15-year mortgage with an interest rate of 3.25%, your monthly payment would increase to $1,405. However, you would pay off your mortgage 15 years early, and save over $78,000 in interest.
3. Make Bi-Weekly Payments
Another strategy for paying off your mortgage early is to make bi-weekly payments. Instead of making one monthly payment, you make half of your payment every two weeks. Over the course of a year, you end up making an extra month’s payment. This strategy can help you pay off your mortgage several years early and save you thousands of dollars in interest.
4. Use Extra Cash Windfalls
If you receive extra cash windfalls, such as bonuses, tax refunds, or inheritances, consider using that money to pay down your mortgage. Every dollar you put toward your mortgage principal reduces the amount of interest you’ll pay over the life of the loan. Just be sure to check with your lender to make sure there are no prepayment penalties.
5. Cut Expenses and Increase Income
To make extra payments on your mortgage, you may need to cut back on expenses or increase your income. Consider ways to reduce your spending, such as eating out less or canceling subscription services. You can also look for ways to earn extra income, such as taking on a side job or selling items you no longer need.
6. Make Lump Sum Payments
If you come into a larger sum of money, such as an inheritance or a settlement, consider making a lump sum payment on your mortgage. A lump sum payment can significantly reduce the principal balance on your mortgage, which can help you pay it off much faster.
7. Invest in a Rental Property
Another way to pay off your mortgage early is to invest in a rental property. The rental income you receive can help you make extra mortgage payments, and over time, you may be able to pay off your mortgage on your rental property as well.