Authored by Patricia Cherry in Mortgages
Published on 10-18-2009
If the first American Dream is owning a home, then the second has to surely be paying off the mortgage. And like any dream or goal, reaching it can sometimes seem like it takes a long time to get there. But if you follow a some fairly simple ways to pay off your mortgage quickly, you can probably take a few years off your payment plan and have your deed in hand faster than you expected.
The obvious first step you can take to pay off your mortgage quickly is to increase your monthly loan payments or make two payments per month. You will have to go over your loan contract first though, because some contracts actually limit the number of payments you can make per month or the dollar amount. But if there is no limit, you can really shave off several years of payments, especially if you specify that the extra money be paid towards the loan principal and not interest. Depending on the amount of your loan and how much extra money you pay each month, you could realistically take five to ten years off a thirty year mortgage with this strategy.
You may also want to consider refinancing your mortgage if you currently have a thirty year loan and instead opting for a fifteen year fixed-rate loan. You’ll have to do the math in each individual case and see how much the refinancing costs add up, but you can usually score a lower interest rate this way which in turn reduces the amount you owe. Your monthly payments will be higher, but if you can afford the increase you will actually pay down the loan quicker with the lower interest rates. Just be absolutely sure you can afford fixed higher payments before you refinance for this reason.
Another way to pay off your mortgage quickly is to make yearly balloon payments if your loan agreement allows it. Making one or two larger payments per year can do wonders for lowering the amount owed on your mortgage. So again, that reduces the amount of interest paid and the number of payments you have left to make.
Timing really is everything in some cases, and with paying off your mortgage early isn’t no different. There are sets dates each month that many banks or lenders have when they calculate interest charges. It is best if you find out exactly what day of the month the interest is figured and applied to your mortgage so that you can get your extra payment in before then. For the same reason, it’s also good to know how long it generally takes for your payment to be processed and if your lender charges a processing fee for any extra payments you make.
These strategies for paying off your mortgage quickly may sound good, but you also may be wondering where you can come up with the extra money. You may also think that putting aside $5 or $10 per month to add won’t make a difference, but it will. Granted, it won’t be as much as if you added an extra $5,000 per year to your payments, but it will help. Giving up one movie weekend a month or one Friday night of eating out can easily save $20 to $50 per month to add to your mortgage payments. Deciding to apply your income tax return to paying off your mortgage early can get you closer to that extra thousand paid. Even brown-bagging it once or twice a week for lunch can add up to an extra $30 to $40 a month to put towards paying off your mortgage quickly.
Whether you manage to pay off your mortgage a month early or three years early, it will still save you money and give you a great feeling of accomplishment when you really can call your home your own.