Most of us dream of the day we finish paying off our mortgage. However, very few people actually do some of the simple steps that it takes to pay off their mortgage fast! Beyond the comfort and security aspect, paying off your mortgage early is a bit like locking in a guaranteed investment return. It can also end up saving you thousands of dollars of interest costs in the long run. Here are a few tips to help you pay off your mortgage early:
Make Bi-Weekly Payments
This is the most painless way to pay off your mortgage quickly. The bi-weekly payment plan allows you to make a half-payment every two weeks instead of a full payment once a month. Because there are 52 weeks in a year, you will have actually made 26 half payments or 13 full monthly payments. The extra 13th payment will get applied to your principal and help reduce the amortization and the life of mortgage.
Pay a Little Extra Month
A lot of homeowners like to put a little extra into their mortgages each month. A great method is to divide your monthly payment by 12 and add it to your current monthly payment, this way you will pay 13 payments every year. Also, if you were renting at $1,500 previously and not have a mortgage of $1,000, try to continue to pay $1,500 to help maintain a consistent monthly budget.
Make an Yearly Lump Sum
You can always make a larger lump sum payment towards your principal every year. A lot of homeowner like to take their tax refunds or yearly bonus from work and apply it to their mortgage. Most mortgages these days allow you to prepay the loan without penalty, but always make sure with your lender or check your closing documents.
Even though paying down your mortgage quickly is a smart move for a lot of homeowners, it can be a bad idea for others. For example, if you have low interest rates, then it might not be smart to payoff the loan as quickly as possible. You could easily take the extra payments and put them towards higher yielding investments such as stocks, funds or even paying off some of the high interest credit cards. Also, if you’re planning of selling your home soon, it may be better to save the extra amount to be used as down payment or closing cost for the next purchase.
What are you doing to pay off your mortgage sooner?