A home is likely one of the biggest purchases you’ll make. Homes are so expensive that most people have to take out mortgages that they pay off over time. The most common mortgage repayment term is 30 years, but millions of Americans are paying off their homes way sooner than that. If you’ve ever thought about how to pay off your mortgage early, keep reading.
Over 38% of owner-occupied homes in the U.S. are mortgage-free. Could you imagine what your life would be like with no huge mortgage payment to make each month? What else would you be able to do with that money instead? Paying off your mortgage faster is something that most families can aim to do. Even shaving 5 years off your loan could still save you a ton of money in the long run. Here are 6 ways to pay off your mortgage early.
1. Start By Buying a Home You Can Truly Afford
This is an important strep if you’re buying a home with the intention of paying your home off early. Homes are expensive and it’s not just the mortgage payment. Maintenance and repairs add up too. Realize there will be so many things that could potentially eat up your disposable income whether it’s paying someone to remove trees in your yard and fix up the landscape or fixing your air conditioning unit when it breaks.
Not to mention, taxes could increase in your area causing your mortgage payment to soar. To avoid getting spread too thin financially, purchase a home that is well within your budget. A good rule of thumb is to keep your monthly housing payment below 30% of your income. If you want to pay your mortgage off early, I’d recommend keeping your payment at or below 20% of your income so you’ll have extra money to throw toward the mortgage.
2. Budget For Extra Payments
If you want to pay off your mortgage early, you’ll need to budget for extra mortgage payments. Realize that even putting an extra $100 to $200 to the principal each month could save you thousands in interest and shave years off your loan term.
I actually ran the calculations for this through our mortgage lender. My lender has a calculator on their site when I log in that shows me how much I could save by making extra payments to my mortgage principal. By paying $200 extra per month, we could shave 9 years and 2 months off our 30-year mortgage and save $54,000 in interest.
The key is to budget for extra payments and make sure the money is going toward the mortgage principal and not interest or escrow. Start small with just $100 to $200 per month then, you can increase it to $500 per month and so on.
3. Make Bi-Weekly Payments
Changing your payment schedule can also help you pay off your mortgage early. The standard payment option lenders offer is to make one monthly mortgage payment. However, you can ask to make bi-weekly payments and split your mortgage payment up.
How this would look is if your mortgage is $1,500 per month, you’d pay $750 every two weeks. What will eventually happen is that you’ll pay extra on your mortgage since some months are longer than others. There may be a month where you make 3 payments of $750 for a total of $2,250 instead of the regular $1,500 payment. This is how you can speed up the mortgage repayment process automatically without even thinking about it.
4. Refinance Your Mortgage
If you have a higher interest rate, you may be able to refinance your mortgage to save money and pay off your loan faster. Mortgage and home refinancing rates have been pretty low this past year so it could be a good time to look into this.
Refinancing is when you get a new loan through a new lender often at a much lower rate. The result is you pay less money in interest and this can even lower your monthly payment too.
The one caveat is that refinancing your mortgage could be a big ordeal. You’ll need to get your home re-appraised, and will likely have some of the same closing costs that you had when you initially bought your home.
The key is to make sure the numbers make sense. Calculate how much a mortgage refinance might cost you and how much you can save over time with a lower rate. Then, talk to your current lender or use a rate comparison site to shop around for refinancing offers.
5. Use Windfalls to Make Lump Sum Payments
Making lump sum payments can make a noticeable dent in your mortgage. You can use windfalls (unexpected money you come across) to make more lump sum payments each year.
Windfalls could be anything like a tax refund, work bonus, or a credit from another company. Instead of considering the bonus as extra money, throw it to your mortgage principal instead.
6. Get a Flexible Side Hustle
Paying off your mortgage early might take a few years. This is why it’s best to consider earning extra money, but be careful in terms of how you go about it.
You probably don’t want to be stuck working two jobs that you hate or never having any free time due to a rigorous work schedule. As a result, hustling at multiple jobs 7 days a week or getting overtime each month may not work well long-term.
Instead, find a flexible side hustle that interests you or allows you to monetize a hobby or skill. Choose something that you might enjoy doing or that allows you to set your own rates and schedule.
This could be walking dogs during your spare time, tutoring students, teaching guitar lessons, starting your own catering sid business, or anything you’d like. Dedicate all the money from your side hustle (after expenses) to your mortgage and watch the balance shrink over time.
Summary: Pay Your Mortgage Off Early
If you want to pay your mortgage off early, it’s not hard to get started. Any extra money you can come up with will shave months and years off your loan. Just make sure you are putting any extra money directly toward the principal balance.
This debt payoff journey may take time so be patient and give yourself some room in your budget to live comfortably and enjoy life along the way.