Many homeowners share the goal to pay off a mortgage early, and for good reason. Paying off a mortgage early can save you thousands in interest and bank fees. It can also get you out from under a hefty monthly payment early and free up cash that you can invest or save for retirement.
With these hefty payments, though, it can seem like a pretty daunting task to pay off a mortgage early. However, it’s very possible, and may be easier than you think. To pay off a mortgage early, you don’t necessarily have to make unrealistic double payments each month. You just have to put a little extra money toward your mortgage to shave off months or years of mortgage payments.
Here are a few tips that can help you pay off a mortgage early…
Buy a Cheaper Home
The bank might tell you that you can afford a $500,000 mortgage, but ask yourself it’s really necessary. If possible, try to opt for a more affordable—read cheaper—home. Your payments will be smaller, making it easier to make extra payments and pay off a mortgage early.
Find a Good Mortgage Calculator
One of the best tools to have at your disposal when trying to pay off a mortgage early is a good mortgage calculator. You can often find these on bank and lender websites as well as financial websites, like DaveRamsey.com. These will give you an idea of how much you can save by making extra payments and how early you can pay your mortgage off.
Pay More Than the Monthly Payment
Even paying a little extra each month can save you money in the long run and pay off a mortgage early. Let’s consider an $80,000 30 year mortgage with a 4% interest rate for a moment, with a monthly payment of $381.93. Just rounding the payment up to $400 by adding an extra $18.07 each month can save you over $5,000 in interest and help you pay off your mortgage two and a half years early. Add an extra $118.07 by making $500 monthly payments and save over $22,000 and pay off your mortgage almost 11 years early!
Apply Financial Windfalls to the Mortgage
From time to time, you may receive money that you didn’t expect or didn’t actually earn. This might be money from gifts, gambling, inheritance, work bonuses, or tax refunds. Instead of going on a spending spree with your unearned money, put it toward your mortgage instead. Since you likely weren’t expecting to have the money in the first place, you probably won’t miss it much.
Refinance Your Mortgage
In some cases, you may want to consider refinancing your mortgage in order to pay a mortgage off early. This can work a coupe of different ways. First, you can refinance to a shorter term mortgage. This will most likely give you a higher payment, but you’ll pay off your mortgage much faster, especially if you also make extra payments. This option should only be considered if you’re positive you can make the higher monthly payments. Another option is to refinance to another 30 year loan, which should lower your payments, but make double payments or continue paying the higher payment you had before refinancing.
Did you pay a mortgage off early or are you in the process? Let us hear your story in the comments below!