Paying off your mortgage is usually a pretty daunting task, where even the idea of finishing the debt seems far off. This is extremely understandable since most mortgages are in the hundreds of thousands of dollars. However, you can quite easily shave years or even decades off your payment schedule by following some of these tips, which will increase your equity and save you plenty of money in interest payments!
Instead of making one monthly payment, there is an opportunity for you to make a half-sized payment every two weeks. This means that, if your usual mortgage payment is $1000 a month, you would instead pay $500 every other week. Now you may be wondering how much of difference that makes seeing as the payments have nearly the same impact on your budget as one monthly payment. However, because there are 52 weeks in a year, a biweekly payment schedule means you’re making 13 full-sized payments a year instead of the normal 12! That’s an entire extra payment made every year without having to scrounge and find extra money. To put this in context, let’s say you have a 30 year $200,000 mortgage with an interest rate of 5%. If you were to make biweekly instead of monthly payments, you would save $34,328 in interest and would pay off the mortgage loan almost five years early!
Let’s keep going with this idea of our 30-year mortgage. If you were to refinance it as a 15-year loan, you would not only speed through that mortgage a whole lot faster, you would probably get a better interest rate as well! Also, because you have a shorter time frame you’ll pay a lot less in interest, meaning that the payments on a 15-year loan are not double the payments of a 30-year loan; they’re actually significantly less. We recommend pulling up a mortgage calculator to play around with the numbers and see how much you’d have to pay to do a 15-year refinance. If you find the monthly payment would be more than you can afford, look at a 20-year loan instead.
When you send in your monthly payment, most mortgage lenders give you the option to make an extra payment marked “principal only”. Unsurprisingly, this means that the payment will go to pay down the principal of the loan as opposed to both the principal and interest. We cannot stress how much paying down even a little bit of extra principal early on will save you on interest charges! Also, making these sorts of payments will get you out of the loan several years ahead of schedule. Consider sending just a little extra to the loan holder every month as an extra principal payment; even if it’s just an extra $50 or so a month, the principal payments will add up faster than you’d believe. One way to go about it is rounding up odd-numbered payments and dedicating the extra bit as a payment on the principal.
Put Your Windfalls to Work
Many taxpayers get a tax refund every year and, if you use most or all of that money as an extra payment on your mortgage, you can make some serious progress towards paying your mortgage early! Other potential jackpots include a bonus from work, a successful garage sale, or a gift from a relative. Another great possibility is if you get a raise. Consider putting all that extra income into your mortgage; it won’t feel like a loss since you weren’t used to having it anyways and it’ll quickly help pay down the loan.
If you’re looking to pay off your mortgage early, these are some very easy ways to help chip away at that debt Making payments more often, in a shorter period, while focusing on the principal are all very good strategies for those looking to make short work of their loans. For more tips and tricks be sure to follow Marina Homes’ blog series!