Maybe you have heard your parents or grandparents talk about a mortgage burning party and wondered how they ever finished paying off their home loan. While it may seem like a daunting task to reduce the amount of time and interest you pay on a mortgage, there are at least five things you can do to pay a mortgage off early.
1. Make biweekly payments. If you get paid every two weeks this makes even more sense, because you can have an equal amount deducted from each paycheck. At the end of a year, you will have made one extra payment. A homeowner with a 30-year-loan can pay their mortgage off years earlier using this method. Many lending institutions make it easy for you to set up these payments and some even encourage it.
2. Dedicate one-time windfalls to reducing the debt. If you receive a bonus or a large tax refund, maximize the benefit of it by devoting some or all of it to your mortgage. Before doing this, make sure your lender doesn’t charge you for large, extra payments and be sure that they apply the extra payment toward the principal (the amount borrowed) of the debt.
3. Refinance at a lower interest rate. This is among the most common methods for lowering the mortgage burden, but many people do not take advantage of one of its greatest benefits, the time refinancing can knock off debt. If you can make the same payment you have been making, you can finish paying off your mortgage months or years earlier than originally planned.
4. Refinance to a loan with a shorter term. This method not only allows you to pay off your mortgage sooner, it obligates you. For some people that obligation is necessary to prompt them to pay more toward the mortgage. Your payment will likely go up, but more of your money goes toward the principal. And, shorter-term loans typically have a lower interest rate.
5. Use your pay raise to make higher payments. If you receive a raise in pay, devote, at least, part of it to making larger payments on your home loan. Again, be sure that your lender applies the extra money towards the principal of the loan.
Remember, with most mortgages, any extra money paid goes to principal, so you save on interest costs right away. And the more extra money you can devote early in a loan’s life, the less time you will be in debt and the less money you will pay for that home. Take the time to investigate other ways you can pay off a mortgage faster than you would on the standard repayment schedule. The benefit of dedicating effort now can be several extra years of living without mortgage debt.