Many first-time homebuyers get themselves locked into 30-year mortgages, with no real plan of getting it paid off sooner. While it’s fine to simply pay the minimum each month, financial freedom truly comes when you no longer need to make a large mortgage payment each month. For most people, their mortgage is their largest payment. Imagine what you could do if you no longer had to pay it every single month.
Those 30-year terms come with higher interest rates, and over the life of the loan will cost you hundreds of thousands of dollars in interest. Look back at your loan documentation and you’ll see the exact amount you will pay in interest when you only make the minimum payments. Additionally, some people got themselves into hot water with variable rate loans that will balloon in the future. This means that it’s more important than ever to have a mortgage payoff plan. Here are 4 strategies to help you pay off your mortgage sooner.
Leverage the Equity in Your Home
When you pay on your mortgage with no end in sight, you probably have already built up a little equity in your house. There is a way to use a HELOC to pay off a mortgage sooner. Basically, you use the line of credit to get yourself a lower interest rate than your home loan. You open the line of credit, and you get a credit card. You pay your household expenses with the credit card, pay your mortgage plus extra in cash, then leverage the HELOC to pay off the credit card each month. It’s a specific and very strategic option that takes a lot of discipline.
Pay One Extra Mortgage Payment Per Year
Did you know that when you pay one extra mortgage payment a year, you could shave 4-6 years off the length of the loan? This simple habit can easily help you save thousands of dollars over the life of the loan. By applying this payment directly to the principle, it reduces the amount of the loan, which also lowers the amount of interest you pay each month.
Since early in the loan, you’re paying mostly interest, this can make a huge dent in paying off your mortgage. Some people simply add an extra $100-$200 per month to their principle, while others will add it once a year using bonuses from work or the extra paycheck you get if you are on a bi-weekly check schedule.
Work Overtime Once a Month
If your work offers over time, just one extra shift a month could help you make a big dent in your mortgage. Apply the extra you make toward the principal balance of your home loan. You’ll be able to watch as you chip away at this huge investment. For those who can’t get overtime with overtime pay, try adding a side gig. Whether you sell things online, do graphic design, write blog posts, or start-up day trading, there are plenty of ways to make just a little extra so you can pay off your mortgage sooner.
Refinance Your Loan
If you got in at a higher interest rate, the good news is that you may qualify for a lower rate. This will reduce your monthly payment amount. One way to strategically use a refinance loan for your home is to continue paying what you pay now. Since the minimum payment amount is lower for the new loan, the extra can go toward the principal balance to help you pay it off sooner. In some cases, this might put an extra $200-$300 toward your mortgage every single month. The lower interest rate will also mean that you’ll pay far less over the life of the loan.
When you want to pay off your mortgage sooner, it’s possible by doing a few simple things. The good news is that you can strategically combine these methods to pay it off even sooner. Instead of paying for 30 years, you might find that your loan is paid off in 20 years or sooner. This puts you in a great financial position. You can leverage your home to purchase a second property that you can use as a rental or other income property as well.
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