8 Strategies for Paying Off Your Mortgage Early
Money Milestone 7 is where you either save for college or pay off your mortgage. Homeownership is a long-term strategy to free up future cash flow, and paying off a home mortgage ahead of schedule is a financial goal many homeowners aspire to achieve. Doing so not only relieves the burden of debt but also saves substantial amounts of money in interest over the life of the loan. Assuming you are on Money Milestone 7, here are 8 strategies to pay off your mortgage more quickly:
1. Make bi-weekly payments.
Rather than making monthly payments, switch to bi-weekly payments. This simple adjustment results in 26 half-payments each year, which equates to 13 full monthly payments instead of the standard 12. Over time, this approach can shave years off your mortgage term and reduce the total interest paid.
2. Round up your payments.
Round up your monthly mortgage payments to the nearest hundred dollars or even to the next whole payment amount. For instance, if your mortgage payment is $1,325, consider paying $1,400 each month. The extra amount goes directly towards the principal, accelerating the payoff schedule.
3. Make extra payments when possible.
Whenever you receive a windfall such as a tax refund, work bonus, or inheritance, consider putting a significant portion towards your mortgage principal. Even one extra payment per year can make a noticeable difference in reducing the loan term.
4. Refinance to a shorter term.
If your financial situation allows (and the interest rate is similar) consider refinancing from a 30-year to a 15-year mortgage. While this may increase your monthly payments, it significantly reduces the total interest paid over the life of the loan and allows you to own your home outright in half the time.
5. Utilize 'found' money.
Use unexpected income sources such as gifts, inheritances, or even proceeds from selling unused items towards your mortgage. These additional payments can substantially reduce the principal amount owed.
6. Avoid PMI (Private Mortgage Insurance).
If your down payment was less than 20% of the home's value, you may be paying PMI. Once your loan balance drops below 80% of the home's original value, contact your lender to remove PMI. This will reduce your monthly payment and allow you to redirect that amount towards paying the principal faster.
7. Consider making extra mortgage payments.
If you have surplus funds from your monthly budget after meeting all necessary expenses, consider allocating a portion of it towards extra mortgage payments. This disciplined approach accelerates the reduction of your principal balance.
8. Create a budget and stick to it.
Developing a comprehensive budget helps prioritize mortgage payments and identify areas where you can cut back on discretionary spending. Redirecting these savings towards your mortgage accelerates the payoff process.
Paying off your mortgage ahead of schedule requires commitment, discipline, and careful financial planning. By implementing these strategies, you can significantly reduce the term of your mortgage and save thousands of dollars in interest payments. Whether you choose to make extra payments, refinance to a shorter term, or simply round up your payments, each step brings you closer to the goal of owning your home outright.
