Paying off your mortgage as fast as possible can save you thousands of dollars in interest. In addition to that, getting your mortgage paid off relieves a lot of stress without that large bill hanging over your head every month. But paying off your mortgage ahead of schedule takes careful thought and planning so you can do it wisely and in the most cost-efficient ways possible.
Many home buyers are choosing to pay their mortgage in biweekly payments rather than standard monthly payments. Even though you are nearly paying the same amount each month, the difference is that you are saving the interest from accruing. In addition to that, paying biweekly means you are paying the equivalent of 13 payments every year (52 weeks) rather than the standard 12 payments you are making if you pay once a month. Based on a 30-year mortgage of $100,000 with a 7 percent interest rate, you could save nearly $35,000 over the course of the mortgage and pay your home off six years earlier than if you only made one payment per month.
Use Bonus Money
Before making any large lump-sum payments on your mortgage, make sure your contract allows you to do so. Some may prohibit large payments or they may have financial penalties for making large payments. However, if you are allowed to make large payments periodically, use your bonus money or any other large amounts of money you get periodically to apply toward your mortgage. Christmas bonuses, tax refunds and birthday money from your grandmother can all help you pay your mortgage off years earlier than you planned.
Make Larger Payments
Your financial situation generally gets better over the course of a mortgage. Most people move up in their company, get promotions or just get better jobs over the years. When this happens, discuss the possibility of increasing your payments with your mortgage lender. Even increasing your payments by $50 or $100 each month will get your mortgage paid off much sooner than you may think.
Refinance at a Lower Interest Rate
Refinancing is an ideal way to pay off your mortgage faster. If you have better credit than you did when you first financed your house, you are likely eligible for a lower interest rate. This means a lower overall total on the mortgage. When refinancing, however, consider a shorter-term for your mortgage. For instance, if you have a 30-year mortgage right now, consider a 15 or 20-year mortgage. Your payments will probably be slightly higher, but you will save thousands on interest over the years and you will pay off your mortgage much faster than with a 30-year plan.