Use These Tips to Pay Off Your Mortgage Early Without Destroying Your Budget
Your home mortgage is probably the largest debt you will ever take on, so it's no surprise that many homeowners are motivated to pay off their mortgage as quickly as possible. Depending on your financial situation, it may be possible to shave months, years, or even decades off your mortgage.
If you're interested in getting out from under your mortgage as soon as possible, our team at SheriGoldman.com is here to help. Here's how you can pay off your home loan early without destroying your budget:
- Refinance to a 15-Year Mortgage
If you can afford to make larger payments, refinancing from a standard 30-year term to a 15-year mortgage will guarantee that you pay off your mortgage in half the time, and save quite a bit on interest in the long run. And it's certainly true that your monthly payments will be higher, but because your term is shorter and the interest likely lower, they won't be anywhere near double your current monthly payments.
- Switch to a Biweekly Payment
Making biweekly mortgage payments—say, $500 every two weeks instead of $1,000 every month—you can actually pay off your mortgage faster. It works because there are 52 weeks in a year, which results in the equivalent of 13 full-sized payments instead of 12. So, to attach some real-life numbers to this concept, if you have a 30-year $200,000 mortgage with a 5% interest rate, making payments biweekly instead of monthly would allow you to pay off the loan almost five years early (and save $34,328 in interest).
- Put Cash Windfalls Into Your Mortgage
Whether it's a work bonus, a raise, an inheritance, or another sudden influx of cash, one of the best ways to pay off your home loan early is to put all that money into your mortgage. And if you get a tax return every year, using it to pay off your mortgage might not be the most fun thing you can do with that extra dough, but it will certainly help you pay it off sooner.
- Pay a Little Extra Each Month
Paying just a little more than you need to each month is a smart way to pay your mortgage off early without straining your bank account. How much depends on your budget, but if you can add just $50 extra to your monthly payment, you could potentially shave several years off the term of your mortgage. The trouble with this strategy is that it requires willpower. Consider creating a separate bank account specifically for your mortgage payments, and have a portion of each paycheck sent directly to that account so you'll be less tempted to spend it elsewhere.
- Pay Extra at the Start
When you first start making payments on your mortgage, you're actually paying mostly interest. Later, toward the end of your mortgage you pay mostly principal. It's set up this way because banks want their money back first. But if you choose to make larger payments during the early years of your mortgage, you can reduce your interest and pay off the whole thing faster. Say you have a 30-year $200,000 mortgage with 5% interest; paying an extra $100 a month for the first 5 years will allow you to pay it off 2 years faster and save you close to $17,000 in interest.
To learn more about your mortgage options, contact SheriGoldman.com today. We're dedicated to helping you through every aspect of home ownership, from finding and financing your dream home to getting the most out of it for years to come!