You made it! You’re a homeowner, you’ve signed the mountains of paperwork, and now you’re entertaining the idea of paying off your mortgage early. Just the idea of owning a home free and clear brings a sense of super-human power and fulfillment. Whoever you are and wherever you are, you can apply these 4 easy tips to shave years off your mortgage.
1. Make one extra payment a year. This can sound daunting, but there are a few ways to make this quite simple.
- Make bi-weekly payments. This means that you will pay half your monthly amount every two weeks. Since there are 52 weeks in a year, that means you’ll be making 26 bi-weekly payments or 13 monthly payments. (You may have received mail from a third-party mortgage processing company offering to set you up to send bi-weekly payments indefinitely; however, be careful since they will likely charge you a setup fee and a monthly fee.) So if your mortgage company doesn’t offer bi-weekly payments what do you do?
- Do it yourself and divide by 12. Simply take your monthly payment and divide it by 12, then apply the extra amount to each payment (making sure it goes to principal).
2. Round up your existing payment. Whatever your payment, round it up 20, 50, or a few hundred dollars. Every dollar counts, so don’t skip rounding up just because you don’t feel like it’s enough.
3. Apply any bonuses or extra money. Did you just get a bonus or a raise? Apply some of that extra money to your mortgage.
4. Refinance. Turn your 30-year mortgage into 15 by refinancing. However, be sure to consider your mortgage debt-to-income ratio and closing costs before you make the switch. If you already have a low-interest rate, it may be easiest to keep the 30-year loan and just pay it off quicker.
Owning your home free and clear may have always been your dream, but you will also want to take a minute to see if it’s really the best use of your money and a smart financial move. For example, if you have credit card debt, it’s likely a better idea to put any extra money towards that payment since the interest rates are so much higher.
Last but not least, talk to your lender to make sure you don’t have a prepayment penalty. The last thing you want is to lose money when you’re working to save money.