You don't have to wait 30 years to pay off your mortgage
Your parents, or maybe your grandparents, might have been frugal enough to have a mortgage burning party. While some financial advisors might encourage people to maintain a mortgage to take advantage of tax benefits, many of us are more excited about the freedom that comes with a home owned with no debt.
If you would like to reach that day sooner than your current mortgage calls for, there are at least five things you can do to make that happen. Remember, with most mortgages any extra money you use to pay it off 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 more months you knock off the time you will be in debt.
Here are just five suggestions for how to pay off your mortgage early. There are other strategies, but these are among the five most common.
- Make biweekly payments. If you get paid every two weeks this makes even more sense, because an equal amount will come out of each paycheck. At the end of a year you will have made one extra payment. A homeowner with a 30-year-loan can finish paying it off years earlier using this method. Many lending institutions make it easy for you to do this and some even encourage it.
- Dedicate one-time windfalls to reducing the debt . If you get paid 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.
- 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 debt months or years earlier than originally planned.
- 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 get them to pay more towards the mortgage. On the plus side shorter-term loans typically charge a lower interest rate. Your payment will likely go up, but more of your money goes to principal.
- Use your raise to make higher payments. Whenever you get a raise in pay, devote at least part of it to making bigger payments on your house. Again, do your homework to make sure your lender will allow this and to ensure they put the extra money towards your principal.
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.
Published Feb 26, 2014.