It’s truly a satisfying feeling when you make that purchase on the home of your dreams. But as the years go by and you’ve been living in your home for a decent amount of time, a 30 year home mortgage can certainly feel more like a jail sentence that you’ll never get out of.
Most Americans don’t stay in one home for that amount of time anyways. But who’s to tell you that you have to stay on that slow track?
Paying off your mortgage early not only makes you a true homeowner quicker, but it also keeps you from paying all that extra interest, allowing you to save and invest your money elsewhere. Here are 10 ways on how to pay off your mortgage earlier.
Refinance Your Mortgage
Refinancing your mortgage could help you wind up not only with a smaller monthly payment but also saving you thousands of dollars by the end of the lifetime of the loan.
You could also consider shortening the term of the loan (15-20 year loan), which would get you a lower interest rate, helping you to drastically save on interest in the long run. This method may seem harder to do because you’ll be expected to pay more each month, but it would be a smart move on your part.
Pay a Little Extra Each Month
By adding any extra cash each month on top of your monthly payment, that money is going directly towards the principal of your loan, which ends up being a pretty big deal! If you are able to put an additional $100 a month extra with your monthly mortgage, you will drastically reduce the years on the loan, (around 8 years) as well as huge chunks of money that you would have paid on interest. ($20-$30 thousand)
Make Extra Principal Payments If at All Possible
Most mortgage lenders will allow you to make any additional payments at your convenience. Some lenders out there will try to ding you so be sure that this is something that your lender won’t try and penalize you for.
You also want to make sure and clearly mark the memo line on the check as “principal only” so that it’s not applied to the interest part of the loan. This way you are whittling down the principle of the loan quicker, instead of putting so much money towards the interest that you are doing with your monthly payment.
Put Bonuses and Refunds Towards Your Mortgage
As tempting as it can be, avoid spending any bonuses, pay raises, or tax refunds on things that you don’t really need and instead put it towards your mortgage. That’s not money you’re used to having anyways. By taking that extra money and applying it to your home loan, you can make huge strides in paying off your home early.
Cut Certain Expenses
It’s time to make a few drastic changes in your spending and also take a look at some of your expenses that could be adjusted. If you are eating out on your lunch break every day, by the end of the week you’ve spent well over $25.
After a month you are looking at easily $100 that you could have saved and applied to your loan, simply by packing your lunch. What are some other life changes that you could make to make a few cuts?
There’s nothing that you can do about fixed monthly expenses such as a car payment or electricity bill, but you may need to take a look at your cable or phone bill and see if you can lower your payment. You may need to switch providers if they are unwilling to lower your payment plan. Many of them will in order to keep you as a customer.
Biweekly Mortgage Payments
By setting up and using a biweekly mortgage payment, you’ll be making 26 smaller payments, equating to 13 full monthly payments at the end of the year. One extra month’s worth of payment may seem like it only provides a small benefit, but this simple tactic can knock off up to 8 years of your 30-year loan depending upon your home’s interest rate.
Make an Extra Payment Each Quarter
Making an extra month’s worth of payment each quarter may seem like something that you can’t afford to do, but the truth is, you can’t afford not to. By doing so, you’ll be able to pay off your home 11 years earlier and save you tens of thousands of dollars.
Rent Out Space
What do you think about renting out a room, your basement, or parking space to pay off your mortgage quicker? You could even consider doing Airbnb with your home while you are away.
Get a Second Job
Starting a second job may seem painful because you’re probably already working well over 40 hours per week. But taking all of your earnings from that part-time job and applying it directly to your loan, can have a huge effect on reducing the years and interest that you are paying on the loan.
Save For a Down payment
One of the best ways to pay off your monthly mortgage early is by putting as much money down as you possibly can when you are first purchasing your home. It’s recommended that you put at least 10% down, but 20% can reduce your payments each month even more significantly. This also gives you the satisfaction of having a bit of instant equity on your home and owning it outright.
Make sure ahead of time that your lender does not apply any penalties for paying off your mortgage early. Unfortunately, there are several mortgage lenders who make sure, one way or another, that they get your money. If your lender does not, use one or several of these tips to help pay off your loan quicker and provide yourself more freedom with your finances.