Purchasing a home is a dream that many Americans share. The mortgage aspect of homeownership can definitely put a stain on this aspect of an American Dream.
While mortgages tend to have low interest rates, homebuyers tend to pay a lot of interest up front due to the amortization schedule for monthly loan payments.
This means having a mortgage can easily cost you thousands of extra dollars in interest over the life of your repayment term. You can say that money instead if you pay your mortgage off early.
What If You Could Pay Your Mortgage Off Early?
The idea of paying off your mortgage early came to me when I spoke with a man who said he wanted to pay off his 15-year mortgage in 5 years or less.
I immediately thought ‘that must be nice’ when I chatted with this man online via our shared personal finance community.
Four years later, he shocked everyone when he announced that him and his wife were mortgage debt free. I have to admit, I was pretty impressed. His success sparked an idea in me that I too could pay off my mortgage.
The truth is, anyone can pay off their mortgage early with the right strategy and discipline. Imagine how your life would be without a mortgage. How much more could you save and invest? What level of freedom will you feel once you know that no one can come and take your house away.
There are plenty of people living mortgage debt free and to me, that is the true American Dream. Check out these real and simple ways to pay off your mortgage early.
Round Up Your Payment
This is a small action that my husband and I started doing as soon as we financed our home. I like nice even numbers so we ended up rounding up our mortgage payment.
Each month, an extra $35 goes toward the principle. It’s not much, but it’s extra money that adds up. Even with that small payment, we are shaving years off our mortgage term and will likely pay our home off earlier than expected.
Plus, rounding up our payment is a good habit that is pretty much automatic now. It paves the way to put more toward our mortgage when we can.
Make Bi-Weekly Payments
This is a popular strategy that can help knock 8 years off your loan term on average depending on the loan amount and interest rate. If you get paid every two week, make half of your mortgage payment each time.
Some months are longer than others which means you’ll get paid 3 times and make 3 mortgage payments for that particular month. This allows you to end up with an extra fully mortgage payment or two that goes straight toward paying down the principle.
Use Windfalls
If you receive extra payments like bonuses at work, tax refunds, and other credits, put it all toward your mortgage. Instead of receiving unexpected extra money and treating yourself, pretend like you didn’t even get a windfall and put it directly toward your mortgage.
This will add up and help you chip away at the balance each year.
Be Frugal
Live on less than you earn and put the difference toward your mortgage. My husband and I would love to get into real estate one day. We want to start on the slow path and actually pay the mortgage down on our primary home first.
In order to do this, we’re being pretty frugal and living below our means. We usually eat most meals at home and pack lunches. We also shop for used clothes and items along with utilizing deals and discounts whenever we can.
Avoid Other Debt
You may not realize this, but your other debt payments are holding you back from being able to pay down your mortgage. Sometimes I think about all the money we put toward credit card balances, student loans, and car loans.
When it’s all said and done, we’ll have paid off around $60,000 of debt. If we can do that, certainly we can round up enough extra money to pay down our mortgage too.
When you have no other debt, you can funnel all your extra money toward your mortgage principle if you wish. Even making an extra payment each quarter can help you pay off your mortgage early.
Refinance
Refinancing can help you save money on interest if rates are right. Even a half of a percentage point could cost you thousands of extra dollars when it comes to paying your mortgage.
Aim to get the lowest possible interest rate possible and refinance if you have to. Just keep in mind that refinancing does come with some fees and closing costs. However, if you feel it will save you more money in the long run, it could be worth the effort.
Summary: Calculate Your Mortgage Payoff
One way to motivate yourself when trying to pay your mortgage off early is to use a mortgage payment calculator.
I like using Bankrate’s calculator because it allows you to add in your desired extra payment amount to see how quickly you can pay your mortgage off.
By using this calculator, I found that my husband and I could pay our mortgage off just 7-8 years by making double payments each month. Now, we just need to find a way to increase our income and decrease expenses to make this plan work.
Have you ever thought about paying your mortgage off early? Which strategy would you use?
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