Categories: Lifestyle

5 Ways To Pay Off Your Mortgage Sooner

Being a home owner is an amazing thing, but it usually comes with a mortgage. When you first commit to the mortgage, you’re comfortable with the monthly payment, and you know that eventually you’ll own the home outright.

But then the years go on and your mortgage seems to be taking FOREVER to pay off. The interest seems extortionate when you have a bigger loan, and you can see all that money going down the drain.

If you’re motivated to pay off your mortgage a little sooner, here are some options.

IMAGE: PEXELS

The idea of paying off your mortgage early might seem impossible some days. If you use every cent you earn, how on earth are you going to pay off more on your mortgage? But it’s tempting, because you know if you can, you’ll save so much money on interest.

Mortgages typically involve paying thousands of dollars in interest over the life of the loan. By reducing the length of your mortgage, you’ll keep more of your hard-earned money in your pocket.

Eliminating your mortgage payment can free up cash flow, allowing you to redirect funds towards other financial goals, whether that’s saving for retirement, investing in stocks, or setting up a college fund for your children.

Owning your home outright provides a sense of security and peace of mind, knowing that your most valuable asset is completely yours.

There’s an emotional aspect to being mortgage-free that many people are drawn to. It symbolizes financial independence and stability, offering a lifestyle where you’re not tied to monthly payments. This liberation can have a positive impact on your overall well-being and can open doors to exploring new opportunities.

Before you jump into strategies for paying off your mortgage sooner, you need to understand some basic mortgage terms. Your mortgage consists of two main parts: the principal, which is the actual amount you borrowed, and the interest, which is the cost of borrowing that money.

Mortgages are typically structured as amortizing loans, meaning you pay back a portion of both the principal and interest each month.

Your interest rate and loan term will affect how much you pay each month and the total cost of the loan over time. A lower interest rate or a shorter loan term can significantly reduce your total costs.

Understanding these components will help you better evaluate which strategy might work best for you.

Overpayments are additional payments toward your mortgage balance beyond the required monthly amount, and finding a way to do this is the most obvious way to pay off your mortgage sooner.

However, before you start funneling extra cash into your mortgage, it’s crucial to understand the terms of your loan agreement regarding overpayments. Some lenders may impose restrictions on the amount you can overpay each year without incurring penalties.

These restrictions can vary; some mortgages allow up to 10% of the outstanding balance to be overpaid annually without fees, while others might have no limit. Reviewing your mortgage agreement or contacting your lender will provide clarity on your specific allowances.

Strategy 1: Cut Unnecessary Expenses And Apply Savings

Take a hard look at your monthly budget to identify areas where you can reduce spending. Whether it’s dining out, subscriptions, or entertainment, finding ways to cut back can free up funds to allocate towards your mortgage.

Create a list of discretionary expenses and assess which ones are necessary. Even modest savings redirected towards your mortgage can have a compounding effect over time. Track your progress and celebrate milestones, like each thousand-dollar reduction in your principal balance.

Additionally, consider selling unused items or picking at home side hustles. The extra income can be directly applied to your mortgage, helping you reach your goal sooner. Every little bit counts, and consistent effort can yield impressive results.

Strategy 2: Make Biweekly Payments

One simple yet effective way to pay off your mortgage faster is to switch from monthly payments to biweekly payments. Instead of making one full mortgage payment each month, you’ll make half a payment every two weeks.

This results in 26 half-payments annually, which equals 13 full payments instead of 12.

This extra payment can make a substantial difference. By the end of the year, you’ll have reduced the principal amount by one full payment, which shortens the loan term and decreases the interest you’ll pay over the life of the loan.

Many lenders offer this payment option, and some will set it up automatically for you.

It’s important to ensure your lender applies the extra payments directly to your principal. You should also check if there are any fees associated with switching to biweekly payments. If done correctly, this strategy can be a hassle-free way to save money and time on your mortgage.

Strategy 3: Make Extra Principal Payments

Making extra principal payments is another powerful strategy to consider. Whenever you have extra cash, apply it directly to the principal balance of your mortgage. This could be from a tax refund, a work bonus, or even savings from cutting back on discretionary expenses.

Extra payments reduce the principal amount, which means you’ll pay less interest over the life of the loan. Even small amounts can make a big difference over time.

For example, an additional $100 a month on a $200,000 loan at 4% interest could save you over $20,000 in interest and shorten your loan by several years.

Before implementing this strategy, confirm with your lender that extra payments will be applied to the principal, not just the next payment due. Also, make extra payments consistently to maximize the impact on your mortgage payoff.

Strategy 4: Refinance To A Shorter Mortgage Loan Term

Refinancing your mortgage to a shorter loan term, such as from a 30-year to a 15-year mortgage, is a more aggressive but highly effective strategy. Shorter loans typically come with lower interest rates, which can save you a significant amount of money in interest payments.

While this option increases your monthly payment, the higher payment goes towards both reducing the principal faster and minimizing the interest. Before refinancing, consider if your budget can accommodate the increased payments. Evaluate potential closing costs and weigh them against the savings from the reduced term.

This strategy is particularly beneficial if you secured your original mortgage at a higher interest rate.

Strategy 5: Use Windfalls Wisely

Windfalls, such as inheritances, tax refunds, or work bonuses, present an excellent opportunity to make significant dents in your mortgage balance. While it’s tempting to splurge, consider using a portion — or all — of these unexpected funds to reduce your principal.

Applying windfalls directly to your mortgage can drastically cut the time it takes to pay off your loan. A large lump sum payment can eliminate months or even years from your mortgage term, depending on the amount.

Make sure to communicate with your lender about your intent to apply these funds toward the principal. Keeping your long-term financial goals in mind will help you stay motivated to use windfalls strategically.

Paying off your mortgage sooner brings financial and emotional benefits. Choose one or some of these strategies to take control of your mortgage and move closer to financial freedom. Consider which strategy suits your lifestyle and financial situation.

You might find that a combination of methods works best for you. Don’t forget to consult with your lender to ensure your extra payments are applied correctly. With dedication and consistency, you can transform your mortgage from a long-term burden into a manageable goal.

Disclaimer: The above references an opinion of the author and is for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice. Invest responsibly and never invest more than you can afford to lose.