How to Pay Off Your Mortgage Faster
Having a mortgage can take a toll both emotionally and financially, so it’s understandable that some homeowners want to get out of that debt hole as fast as possible.
The good news is that trying to pay off a mortgage early is not only possible, but it’s also a fantastic strategy. You’ll end up paying less in interest payments, helping you get back on track to a debt-free life.
If you’re planning on how to pay off a mortgage in 5 years or less, this article is for you. We’ll also discuss some instances when the fastest way to pay off a mortgage is actually not the best path to take.
How to Pay Off Mortgage Early
The key to paying off a mortgage early is to either have extra cash, which can be achieved with either a strict budget or additional income, or careful planning. Here are some strategies you can try:
Mortgage refinancing involves taking a loan with a lower interest rate to pay off your mortgage, so you end up paying less interest overall. You can also shorten the term when you refinance (for example, getting a 15-year personal loan to pay for your 30-year mortgage.)
Refinancing your mortgage is a smart move, but only if you find a loan that has a lower rate of interest than your existing loan. Don’t forget to look at the other costs and fees when you refinance to make sure the loan won’t eat up your savings.
Make bi-weekly payments
Making bi-weekly, instead of monthly, payments is a simple shift that can have long-lasting effects.
First, take your monthly mortgage payment and split it into half. Then, instead of paying your full rate monthly, you’ll pay this halved amount every two weeks. At the end of the year, you’ll have paid thirteen months’ worth of payments instead of twelve months. This small change helps you pay off your debt faster: you’ll shorten your mortgage terms by up to thirty days each year.
Before doing this, ask your lender if they accept a bi-weekly arrangement. If not, you’ll only be mildly inconvenienced. You can split the monthly payment yourself but pay them to your lender at once.
The best thing is that, for most budgets, the extra half payment you put in at the end of the year is barely noticeable. However, if you are on a strict budget, you may want to calculate your expenses to see if this option makes sense for you.
Save up and pay the extra
When figuring out how to pay off a mortgage faster, the best way is to make extra payments. Even an additional $100 every month can shorten your loan by years, shaving off thousands of dollars in interest rates.
The good thing about this tactic is that, unlike refinancing, you have complete control over how much extra you want to pay every month. You can safely skip extra payments during lean seasons, without any repercussions from your financial institution.
Of course, if you’d like to see the best results from this method, you should be as consistent as possible. You may have to cut down on unnecessary expenses and e use discipline to stick to your budget.
Downsize your home
Sometimes, when thinking of how to pay off a mortgage quickly, a drastic move like downsizing is your best alternative. You’ll essentially sell your old home and use the profit to buy a smaller, less expensive home – eliminating part of your mortgage in the process.
Even if you have to take out a home loan for your new house, chances are it’ll be much smaller than your current mortgage. So as long as you’re willing to downsize, this can be a win-win situation for you.
Wondering how to pay off a mortgage really fast? Consider recasting: a method where you pay the loan issuer a lump sum of money to significantly reduce your mortgage balance. The bank will then recalculate your mortgage schedule, resulting in a shorter-term loan.
Recasting is a good strategy if you have a considerable amount of extra income from an inheritance or bonus, for example. The bank will charge you recasting fees, but the benefits often outweigh these additional costs.
Is Paying Off a Mortgage Quickly a Good Idea?
Despite the benefits, paying off your mortgage as fast as possible isn’t always your best bet.
For example, suppose your mortgage has a low-interest rate. In that case, you might benefit from spending your extra cash elsewhere. An investment with a high return rate, for example, can eventually allow you to pay off your mortgage payments quickly (and leave you with some extra money for your trouble).
You should also prioritize your emergency fund and retirement savings before pouring everything into your mortgage. These savings are beneficial for you in the long run, since they can cover your living expenses now and when you retire. It’s also prudent to eliminate any higher-interest debt you have before putting extra funds into your mortgage.
The bottom line: you should compare your mortgage with your other debts and opportunities. You need to look at your complete financial picture to see if prioritizing your mortgage is a financially viable move for you.
Paying Down a Mortgage With Debt Relief
Trying to pay off a mortgage early is one thing, but what if you’re struggling with payments in the first place? That’s where strategies like debt relief come in. If you’d like to know more, request a free consultation with our debt experts at CreditAssociates.