Part of becoming financially free is getting rid of debt. For most of us, our biggest debt is our mortgage. Paying off your mortgage will free up so much more money every month since it’s probably your highest expense. In this article, I give you some tips to pay off your mortgage quicker.
CAN You Pay Off Your Mortgage Early?
Before we get started, the first thing you need to do is make sure you can even pay off your mortgage early. Check with your mortgage company first before you make any extra payments. Some companies have prepayment penalties or only accept extra payments at specific times.
Also, whenever you make an extra payment, make sure to include a note that says “principal only”, meaning the payment will go to pay down the principal rather than both the principal and interest on the loan (or next month’s payment).
Tips To Pay Off Your Mortgage Quicker
Make Extra Payments
Paying down a little bit of extra principal on your loan can save you big on interest payments on the loan—not to mention getting out of debt faster. So consider paying just a little extra on your loan every month.
For example, if your loan payment is $1,860 per month, you can round up to $1,900. Remember to specify to your mortgage company that extra $40 is payment to go towards the principal. Even that extra $40 a month will save you a lot of interest and speed up you paying off your mortgage faster than you think.
Let’s say you have a 30-year $200,000 mortgage at an interest rate of 5%. If you pay an extra $40 towards your principal every month, you will save a total of $17,040 in interest payments and pay off your loan 2 years, 4 months earlier. So remember, every little bit counts!
An easy way to find money to put towards extra payments is with a budget. With a budget, you can see where your money is going every month. This will give you the information you need to see what areas you can cut back on. Making some small sacrifices can go a long way to help you pay off your mortgage early.
Related Article: How I Saved $300,000 In 4 Years
Make Biweekly Payments
One of my favorite tips to pay off your mortgage quicker is to make biweekly payments. Instead of paying your mortgage once every month, pay half that amount every two weeks.
For example, if your mortgage payment is $2,000 per month, pay $1,000 every two weeks instead. At the end of the year, you would have made one extra monthly payment towards your mortgage. This is because there are 52 weeks in the year; therefore, a biweekly payment will result in 13 full-sized payments instead of the normal 12 payments.
Paying your mortgage biweekly, instead of monthly will not only allow you to pay off your mortgage much faster, but it will also save you a ton of money on interest payments. Let’s say for example you have a 30-year $350,000 mortgage at an interest rate of 5%. Making biweekly payments will allow you to pay off your home in 25 years and save you $62,184.26 in total interest.
If for any reason your lender isn’t open to biweekly payments, simply open a new bank account specifically to hold your mortgage payments. Deposit your biweekly payment (half monthly payment) every two weeks. Then use the money in this account to make your full mortgage payment every month. At the end of the year, use the money in this account to make your extra monthly payment. Remember to mark this extra payment as “principal only”.
This is a truly simple way to pay off your mortgage faster especially if you also get paid biweekly. If you want to see how much you can save on your mortgage by making biweekly payments, you can check out this biweekly mortgage calculator.
Put Your Windfalls Towards Your Mortgage
One of the easiest tips to pay off your mortgage quicker is to put your extra cash towards your mortgage. If you’re lucky enough to get a tax refund or a bonus from your job every year, you can put that extra money towards your mortgage.
You can also put any extra money from gifts, side hustles, or raises towards your mortgage. You probably won’t miss this extra money because you’re not used to having it. So use that money as an extra payment towards your mortgage instead of spending it.
Refinance To A Shorter Loan
If you have a 30-year mortgage consider refinancing it to a 15 or 20-year loan. Shorter loan terms usually have lower interest rates. So, if you already have somewhat of a high interest mortgage, you might find your monthly payments are not much higher that what you’re paying now.
Use a mortgage calculator and play around with the numbers so you can see what your monthly payments would be if you were to refinance. Just make sure you’re not biting off more than you can chew, and that your monthly payments are still affordable.
Only refinance if you can secure a loan lower than the interest rate you’re paying now. If you already have a low interest rate, or can’t get a lower interest rate than what you currently have, you can pay on your 30-year mortgage like it’s a 15-year mortgage. The extra advantage to paying your mortgage like you have a shorter loan term (without actually refinancing) is you also save money on closing costs.
Get A Cheaper Home
If you’re really serious about getting rid of your mortgage early, get a cheaper home. This is one of the best tips to pay off your mortgage quicker. With the profits you get from your old home, you might be able to even pay cash for your new home. However, even if you still need a mortgage on your new home, you still would be reducing your debt. And remember, the smaller your mortgage, the quicker you can pay it off.
Put Down A Hefty Down Payment
If you decide to buy a new home, make sure you put down a strong down payment. I recommend putting down at least 20%. Putting more money down on your home can help you in many ways. For example,
- You can avoid paying private mortgage insurance (PMI)
If you put down 20% or more down on your property, you’re not required to get PMI by your lender. PMI costs around .5% to 1%—so on a $300,000 mortgage, PMI will cost you $1,500 to $3,000 a year.
- Your mortgage payment will be lower
Your mortgage payment will be lower because it’s less money you will need to borrow from the bank. The lower your mortgage payment is each month, the easier it makes it for you to pay off your mortgage early.
- You can probably get a better deal on your new home.
Sellers like to see strong financials from buyers because that reduces the chances of the deal falling through. So if you make an offer on a house with a higher down payment, the seller would be more inclined to take your offer over other buyers.
Rent Out Space
One of my last tips to pay off your mortgage quicker is to rent out space. If you have any extra space in your home, consider renting it out. You can rent out your guesthouse, mother-in-law suite, an extra bedroom, garage, or parking space. If you go on vacation, consider renting out your home wile you’re gone. Renting out your space is a great way to make a little extra money that can be added to your mortgage payment.
Is It A Good Idea To Pay Off Your Mortgage Early?
I know I gave you a lot of tips to pay off your mortgage quicker; but sometimes, it’s NOT best to pay off your mortgage early. For example, I have a mortgage that I’m not trying to pay off early. You may wonder why? The answer is because the interest rate on my mortgage is very low (under 4%), and I can make my money work better for me by putting all my extra cash towards investments instead.
If you’re in a similar situation, I think you should invest that money or put it towards retirement instead.
Here’s some food for thought, some of the richest people in the world choose to have a mortgage. Jay-Z and Beyoncé financed their $88M mansion ($52.8M mortgage); billionaire Daryl Katz has almost a $50M mortgage on his mansion; and billionaire Mark Zuckerburgh financed his $5.95M home.
Ask yourself, “Why would these billionaires want a loan when they can easily buy their properties outright?” The answer is, there’s no sense in tying up your own money, when you can use that money for more profitable things.
Let’s be clear, I’m not saying to not pay off your mortgage early and put your cash in the bank (or worse…spend it). I’m saying it does not make sense to pay off your mortgage early if you can get a higher return on your money doing something else—like investing.
Finally, if you have any debt that’s higher than the interest on your mortgage, your priority should be to pay off that debt—not to pay off your mortgage. Once you get rid of those higher interest debts, then you can consider paying off your mortgage early.
Although I personally decided not to pay off my mortgage early, I can see why others strive to accomplish this goal. It just feels good to know you don’t owe debt to anyone, and it makes your monthly obligations lower. So I definitely think paying off your mortgage is a huge accomplishment! Hopefully, by implementing these strategies and using these tips to pay off your mortgage quicker, you will be able to pay off your mortgage in no time.
- How I Use My Monthly and Yearly Household Budget Spreadsheet
- 3 Easy Ways To Cut Household Expenses
- Reduce Housing Expenses: How To Get Out Your Current Living Situation
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