You signed a mortgage for the next 30 years, but looking down the road, do you really want to be paying a mortgage in your 60s and 70s? If you are like most Americans, you want to pay off your mortgage as fast as you can. The good news is that there are ways to do that even without being a millionaire. Here are some simple tricks.
Make Miscellaneous Extra Payments
The easiest way to pay your mortgage off faster is to make extra payments towards your mortgage. These extra payments should go directly towards the principal of your loan. This way, moving forward, you pay less interest. Over time, your principal reduces and more of your regular payment goes towards the principal rather than the interest. The combination of the extra payments and the amount of your regular payment that goes towards principal brings the amount of time it takes to pay off your mortgage down greatly.
How much extra you pay is up to you. Some people choose to make higher payments when they can afford to, such as when they get a bonus payment or they receive a tax refund. Other people make it a regular habit. They figure out how much extra they can pay each month and they make it part of their regular mortgage payment. However you decide to do it is up to you; the bottom line is that you shave time off of your mortgage term, saving you money in the long run.
Add 1/12th of your Payment to Each Payment
If you want to be very methodical about paying your mortgage off faster, you can take your regular mortgage payment (principal and interest) and divide it by 12. You then add this amount to each mortgage payment you make every month. At the end of the year, you have made 13 mortgage payments rather than 12 payments. This could shave several years off of the term of your mortgage and thousands of dollars of interest off of what you would pay.
Make an Extra Payment Every 3 Months
If you cannot afford to pay extra towards your mortgage on a monthly basis, consider making one extra mortgage payment every quarter. This way you have 3 months to save up for that extra payment. At the end of the year, you make 4 extra mortgage payments, which could shave off more than 10 years off of the term of your loan. This method requires plenty of discipline, however, since you have to save up 1/3 of your mortgage each month in order to pull it off. If your regular principal and interest payment is $1,500, this means saving $500 per month to put towards your quarterly mortgage payments.
Make 15-Year Payments to Pay Off your Mortgage
If you took out a 30-year term mortgage but can afford to make higher payments, consider making 15-year term payments. You do not have to formally refinance in order to do this – you can simply use an online mortgage calculator to determine what the 15-year payment would look like for your loan amount and at today’s interest rates and make that payment. This way you could have your mortgage paid off in about half of the time of the original term you took it out for.
Make Bi-Weekly Payments
If your mortgage servicer will allow it, make your payments bi-weekly. This works best for people that get paid on a bi-weekly basis because you get a few extra paychecks in those long months. What ends up happening is you make an extra payment or two along the way because you pay every two weeks rather than once a month. Those longer months make it possible for you to make 13 payments per year, shaving a few years off of the term of your mortgage.
Any extra money you can pay towards your mortgage will help you pay off your mortgage faster. The more disciplined you are about the extra payments, the faster you will pay your loan off. Even if you can only pay a few extra dollars each month, though, it is worth it as you cut the principal down, which trickles down into the interest, making the total amount of interest you pay lower in the end.Click to See the Latest Mortgage Rates»