When you bought your home, like two-thirds of American homeowners, you realized, of course, that this big investment would also be married to those lovely monthly mortgage payments for decades to come. But what if the payoff could be paying off your mortgage years earlier? Here are 8 rather easy ways to do it in small increments, which will decrease your principal balance while increasing your equity and savings on interest payments!
Increase your down payment- First thing’s first, when you’re in the initial phase of buying a home, if you can afford to put at least 10-20% down at closing (20% will eliminate the need for added private mortgage insurance, or PMI), the less money you’ll need to finance in a mortgage, which means a lower mortgage payment each month that could be easier to pay off early.
Make biweekly (not monthly) payments – To pick up the pace and momentum of your mortgage payments, make half of your monthly mortgage payment every two weeks, which adds up to extra payments during the year, i.e., 26 half-payments equals 13 full monthly payments/year equals possibly eight years less than a 30-year mortgage, depending on your interest rate. The only hiccup is if your lender doesn’t allow biweekly payments; if that’s the case, open a bank account for your mortgage payment and deposit your half-payment every two weeks in there, using that money in that account to pay your full monthly mortgage payment on every second deposit.
Make an extra house payment each quarter – If you can discipline yourself to do this, you’re a financial rock star and you’ll pay your mortgage off a whopping 11 years early and save more than $65,000 in interest.
Make extra principal payments – If you’re able to pay down even a small portion of your principal only, it could save you a lot in interest charges. Even if you can round up a principal payment to an extra $50 a month, you could pay off your loan years ahead of schedule.
Refinance – If you’re able to refinance your 30-year mortgage into a 20- or 15-year loan, it could speed you through your mortgage, land you a lower interest rate, and have you paying less money in interest overall. Despite what you may think, the payments on a 15-year loan are not double the payments of a 30-year loan. They’re actually significantly less.
Take advantage of extra money – Consider using most or all of your tax refund or a work bonus as an extra payment on your mortgage. And if you get a raise, use that extra percentage of income into your mortgage; it could be an additional $100 or more, and you won’t miss it.
Take advantage of saving money – If you can brown bag it to lunch over order takeout, avoid expensive coffee shops and take on more sacrifices, you could actually wind up three years ahead of schedule. And, in the end, it makes it all worth it!
Downsize your home – This may be a better fit for you if sell your larger home and use the profits to buy a smaller, less expensive home. If there’s enough profit from the sale, you may even be able to pay cash for your new home, completely eliminating debt!
Call Paige Bird at 843.450.4773 to schedule an appointment to discuss the best options for you.