So youre eager to join the nearly 40% of American homeowners who actually own their home outright. 1 Can you imagine that? When the bank doesnt own your house and you step onto your lawn, the grass feels different under your feet-thats freedom.
Dont worry. Well show you how to pay off your mortgage faster so you can finally join the ranks of debt-free homeowners. Lets get started.
4 Ways to Pay Off Your Mortgage Early
Okay, you probably already know that every dollar you add to your mortgage payment puts a bigger dent in your principal balance. And that means if you add just one extra payment per year, youll knock years off the term of your mortgage-not to mention interest savings!
1. Make Extra House Payments
Lets say you have a $220,000, 30-year mortgage with a 4% interest rate. Our mortgage payoff calculator can show you how making an extra house payment ($1,050) every quarter will get your mortgage paid off 11 years early, and save you more than $65,000 in interest-cha-ching!
- Check with your mortgage company first. Some companies only accept extra payments at specific times or may charge prepayment penalties.
- Include a note on your extra payment that you want it applied to the principal balance-not to the following months payment.
- Dont shell out your hard-earned cash for a fancy-schmancy mortgage accelerator program. You can accomplish the same goal all by yourself.
Some mortgage lenders allow you to sign up for biweekly mortgage payments. This means you can make half of your mortgage payment every two weeks. That results in 26 half-payments, which equals 13 full monthly payments each year. Based on our example above, that extra payment can knock four years off the 30-year mortgage and save you over $25,000 in interest.
A biweekly payment plan can be a good idea-but never pay extra fees to sign up for one. Remember, theres nothing magical about them. The real reason it helps pay off your mortgage faster is because your extra payments add up to 13 monthly payments per year instead of the standard 12. So if your lender only lets you pay biweekly by charging you a fee, dont sign up.
2. Bring Your Lunch Into Work
Sure, bringing an egg salad sandwich to work every day isnt as fun as going to a restaurant with your coworkers. But trading lunch out for eating in can make you a lean, mean, mortgage-free machine.
Suppose packing your lunch frees up $100 to use toward your mortgage every month. Based on our example above of the $220,000 loan, that $100 in lunch money will help you pay off your mortgage four years ahead of schedule and save you nearly $27,000 in interest!
Cant quite spare a whole $100 from your food budget? No worries. Even small sacrifices can go a long way to help pay off your mortgage early. Put Andrew Jackson to work for you by adding just $20 to your mortgage payment each month. Based on our example, youll pay your mortgage off a year early, saving over $6,000 in the process.
3. Refinance-Or Pretend You Did
Another way to pay off your mortgage early is to trade it in for a better loan with a shorter term-like a 15-year fixed-rate mortgage. Lets see how this would impact our earlier example. If you keep the 30-year mortgage, youll pay more than $158,000 in total interest over the life of the loan. But if you switch online payday loans South Dakota to a 15-year mortgage, youll save over $85,000-and youll pay off your home in half the time!