6 Ways to Pay off Your Mortgage Quicker
Your mortgage is likely to be the largest debt obligation you’ll have to pay down. It’s not uncommon these days for homeowners to take on mortgages that will require payments for very long periods of time, even up to 25 years. It can feel like you’ll be making those payments forever.
Luckily there are solutions you can implement that will lead you to become mortgage-free much faster. Here are some tips:
Increase your payments – The best way to become mortgage-free faster is to simply increase how much you pay. The advantage of using this method is the flexibility you have in choosing the optimal amount based on your budgetary constraints.
Your mortgage contract will have specific details on the amount you’re allowed to increase your regular payments by, so be sure to check the terms and conditions before you make your decision. If you go over these limits, you may incur prepayment penalties.
Make use of windfalls – Take advantage of windfalls such as bonuses, inheritances, and tax refunds by putting them towards your mortgage as lump-sum payments. Lenders usually allow these lump-sum payments once a year to help homeowners pay off their balance quicker. Once again, ensure you understand the terms and conditions outlined in your mortgage contract regarding the amount you can contribute, so that you don’t get hit with penalties.
Accelerate your payment schedule – The length of time that is required to pay your mortgage off in full is greatly influenced by the frequency with which you contribute regular payments. If your contract allows for it, you may be able to make accelerated payments, which gives you the option to make weekly or biweekly payments. Utilizing accelerated payments will help you save on interest charges and equates to approximately one extra mortgage payment per year. Over the long run, these payments can knock off several years off your mortgage.
Refinance your mortgage – Refinancing your mortgage can help you pay it off faster, but only if you can obtain a lower interest rate. If you are able to refinance, such as going from a 25-year mortgage to a 15-year mortgage, you’ll benefit from lower interest charges, while securing a path to an early payoff. However, there are fees associated with refinancing, so ensure you crunch the numbers to see if the cost of refinancing is worth it.
Keep your payments the same when you renew – When the time comes to renew your mortgage, you’ll be able to negotiate a lower interest rate, either with your existing lender or a new lender of your choosing. If you can obtain a lower rate while keeping your monthly payments the same, the result is an acceleration in the payment of the principal.