Your mortgage is probably not only your biggest expense but your biggest financial commitment time wise—up to 30 years for many of us. Having that payment hanging over your head every month for that amount of time can be a bit stressful and paying down this debt more quickly is appealing to many. Your home will truly be yours much sooner and you will have a lot more money to work with each month. Paying off your mortgage early is definitely possible with some proper planning and something definitely worth considering.
Opt for Bi-Weekly Payment
Opting to pay your mortgage every two weeks instead of every month will bring you to 13 payments ever year. This may not sound like a lot but if you have a 30-year loan– depending on individual factors like interest rates—you may be able to pay it off in 22 years. Some lenders may charge a fee for this or not offer it at all; you can still use this strategy without having an official plan in place; just add 1/12 of your monthly payment to each payment you make. But, make sure you make it clear that the extra money is to go towards the principle.
Refinance to 15-Year Loan
The longer we have a loan for, the more we will pay in interest clearly. When it comes to sums like those involved in a mortgage, this is quite a chunk of change. If you can refinance a 30-year loan into a 15-year loan, you are looking at some serious savings. To illustrate: A 30-year loan for 200,000 at 5 percent will cost you over 186,000 dollars in interest while this same loan at 15 years is just over 84,000. Of course, a shorter loan term equals bigger payments so this is only a good option if you can swing the extra money. In this scenario, you are looking at an added expense of around 500 dollars a month. Generally, housing costs should account for no more than 1/3 of your income.
Rounding up your payments may seem like another strategy that will not make much difference, but when you are dealing with loans for hundreds of thousands of dollars, even slight increases in your monthly payments can save you a lot of money. If you have a mortgage payment of 960, let’s call it an even 1,000. This is not a large sum of money that would detract from making other timely payments so why not put it to good use?
If You Can Afford to Pay More, Do It
If your current mortgage payment is based on a lower income that has since increased, whether you have gotten a better job or your spouse has returned to work, increase your mortgage payments. While you should enjoy having some disposable income and living more comfortably, if you can afford to take on a higher payment, do it. Even if it is just a couple of hundred dollars a month, this will save you a bundle in interest and you will be glad you did it in the long run.
Kelli Cooper is a freelance writer who covers a range of financial topics from mortgage advice to how to save money on groceries. Check out Kanetix for some great information on how to pay off your mortgage faster.