Sick of Mortgage Payments? Pay Off Your Home Early!
Save thousands of dollars in interest
Sick of making mortgage payments? They can be a huge drain on your budget, especially if your mortgage is eating up a large portion of your income. Not to mention all the interest you're paying on the loan over 30 years.
If you're determined to say goodbye to your mortgage before your loan ends, here are five ways people pay off their mortgage early and shave thousands off their interest payments.
Make Biweekly Payments
Most people default into making one mortgage payment per month. But if you pay half of your mortgage every two weeks, you're effectively making one extra month's payment per year - without really "feeling" it.
You see, one payment per month equals 12 payments per year. If you paid half your mortgage twice as often, then, in theory, you'd make 24 payments.
But there are 52 weeks in a year. Making one payment every two weeks means that you're paying 52 divided by 2, or 26 payments a year. In other words, you're making an extra month's payment each year.
Check with your lender to see if they offer a biweekly payment program. Some charge a fee associated with the program, while others don't.
Make One Extra Payment Each Year
If your lender charges a fee for making biweekly payments (or doesn't offer a biweekly payment plan at all), you could simply choose to make an extra month's payment every year. It will create a similar "effect" as making biweekly payments.
It will, however, require extra discipline on your end - you'll need to save that payment. (The additional month that's included with a biweekly payment plan, by contrast, is a payment that you don't "feel" yourself making.)
How can you save an extra month's mortgage? Try automatically transferring a small amount each month into a savings sub-account earmarked as "extra mortgage payment."
Round Your Balance Up
Mortgage payments are wacky numbers, like $1,476.82. Why not round up to $1,480 (less than $4 extra per month) or round all the way up to $1,500? You probably won't feel the pinch, but you'll shave years off your balance due.
Word of caution: check with your lender to make sure that extra contribution applies to your principal, not to interest or to next month's payment.
Get a 15-Year Mortgage
Standard mortgages last for 30 years, but you can opt for a 15-year or 20-year mortgage. Your monthly payments will (obviously) be higher, but your interest rate will be a bit lower. You'll save money in two ways: you'll pay a lower interest rate and for a shorter period of time.
If you don't want to lock in the commitment of such a high monthly payment, you could take out a 30-year mortgage and simply make hefty extra payments on it, acting as if you had a 15-year mortgage. Your interest rate will be slightly higher, but in return, you'll have more flexibility in your payment obligations.
Throw "Unexpected" Money at Your Mortgage
Have you ever received "surprise" money such as a bonus, commission, tax refund or inheritance? You didn't expect this income, so you budgeted to live without it. In other words, you don't "need" this money.
Now you suddenly have a check for a few thousand dollars. What should you do with it?
Many people fritter away this unexpected money on little "extras" - more dinners out, a new grill, some nicer curtains. Then they say, "I don't know where all that money went!"
Instead, why not apply that entire lump-sum to your mortgage? It could potentially shave years off your loan. Again, check with your lender to make sure that your extra contribution will apply towards your principal.