Most of us get a mortgage and agree to make payments for up to 30 years when we buy a home. But according to the government, Americans move an average of 11.7 times throughout their lives. This means that many people start making mortgage payments more than once. If you can afford it, getting out from under your mortgage could positively affect your quality of life and finances, especially during retirement. With this in mind, it might be a good idea to look for tips to pay off mortgage faster, either to build equity faster or to save money on interest. The ultimate goal should be to own your home outright. After all, if you can eliminate your monthly mortgage payment, it will be much easier to retire or reduce your working hours later in life.
Here are 6 mortgage tips to consider to pay off mortgage faster will help your long-term finances. Let’s get started.
6 ways to quickly pay off mortgage faster
But how do you pay off mortgage faster? Most mortgages today don’t have penalties for paying them off early, so you can pay off mortgage as quickly as you want.
So, if you want to know how to lower your mortgage payments or to pay off mortgage faster, here are a few tried-and-true tips. Remember that the best plan for you will depend on how much “extra” money you have and how important it is to become mortgage free.
1. Refinance your mortgage
If the mortgage interest rate goes down, you might be able to pay less in interest if you refinance your mortgage or get a new mortgage to pay off an old loan. For instance, a borrower has a $200,000 mortgage with a 5% interest rate and 20 years left on the loan. If this borrower can refinance into a new 20-year loan with the same principle and a 4% interest rate, the monthly payment will go from $1,319.91 to $1,211.96, a drop of $107.95. Over the life of the loan, the savings in interest will add up to $25,908.20.
If you’re the borrower and want to move out but keep the house, you can turn your reverse mortgage into a regular mortgage loan. Just remember that if you want to keep the house, you’ll have to start making payments on the new loan. Borrowers should thoroughly analyze to determine if refinancing is good for their finances. Visit our Mortgage Calculator to look at your options for refinancing.
2. Increase mortgage payments
Extra mortgage payments can reduce interest and shorten the loan’s term. Consider these strategies if your lender doesn’t charge an early payoff penalty.
Moreover, extra payments should go to the principal, not interest. Your lender may apply payments to future monthly payments if you don’t.
When interest is high, prepay. The first few years’ monthly payments mostly interest, not principal. Also, each month’s interest is based on the total owed due to compounding (principal plus interest).
3. Make one extra mortgage payment a year
An extra annual mortgage payment could shorten your loan. Moreover, it is less expensive to pay 1/12 extra per month. You’ll have made an extra payment in a year by paying $975 per month on a $900 mortgage.
4. Make mortgage payments in rounds
Rounding up can reduce the term of your mortgage. Round up to the nearest $100 in your mortgage payment budget. Pay $800 rather than $743. Or $900 instead of $860.
5. Try a $1/month plan
The dollar-a-month strategy should be financially viable if your income increases gradually.
Add $1 to your monthly payment. Just pay $900 the first month, $901 the second, $902 the third, etc. For a $150,000 loan with a $900-per-month mortgage and a fixed interest rate of 6%, the mortgage term could be cut by eight years.
6. Make use of any unexpected funds.
Send any extra money you get right away to your mortgage company. This includes tax returns, rewards from credit cards, and bonuses for the holidays. Using this money will not affect your monthly budget.
Don’t Buy A Second Home If You Can’t Afford
Let’s say you decide to downsize. Before you buy a second home, you should ensure everything is in order and know how much house you can afford. This handy list of things to do is an excellent place to start. If you can’t answer “yes” to all six questions, you should probably put off buying a home.
- Do I have an emergency fund for three to six months’ worth of expenses?
- Can I make a down payment of at least 10% (preferably 20%)?
- Do I have sufficient funds to cover moving expenses and closing costs?
- Does my house payment take up less than 25% of my monthly income?
- Can I pay for a 15-year loan with a fixed rate?
- Can I afford to keep this house in good shape and pay for the utilities?
Use our mortgage calculator if you need help figuring out how much your new mortgage payment will be each month.
Furthermore, Second homes and investment properties are different, despite their appearances. Choosing the type of property you want to buy is an important first step. Choosing a vacation home or investment property affects mortgage rates, down payments, and tax deductions. Let’s compare second homes and investment properties to see which is best for you.
Second Homes Vs. Investment Properties
Let’s compare Second homes vs. investment properties:
Pay Off Mortgage Faster: Benefits
Paying off a mortgage faster is a better long-term investment than saving money. Let’s find out some advantages of mortgage.
For starters, paying off one debt means you can handle debts like a credit card that are due quickly. Moreover, early mortgage payoff saves money on interest. Getting rid of these future payments improves your financial stability and allows you to handle market fluctuations better.
Now that you know how to pay off mortgage faster. Hurry up! Meet with one of our specialists today to discuss your personal financial goals with an expert.