Paying off your mortgage early can help provide you with financial stability, and you may save money in the long term by accruing less interest. Here are some ways you can pay off your mortgage faster:
1. Refinance your mortgage
If interest rates decline, one of the most effective ways to pay off your mortgage early is to refinance your mortgage. You may reduce the amount you pay toward interest, in addition to electing to reduce your loan term significantly.
2. Make extra mortgage payments
Another way you may be able to save money on interest, while reducing the term of your loan is to make extra mortgage payments. If your lender doesn’t charge a penalty for paying off your mortgage early, consider the following early mortgage payoff strategies.
Just remember to inform your lender that your extra payments should be applied to principal, not interest. Otherwise, your lender might apply the payments toward future scheduled monthly payments, which won’t save you any money.
Also, try to prepay in the beginning of the loan when interest is the highest. You may not realize it, but the majority of your monthly payment for the first few years goes toward interest, not principal. And interest is compounded, which means that each month’s interest is determined by the total amount owed (principal plus interest).
3. Make one extra mortgage payment each year
Making an extra mortgage payment each year could reduce the term of your loan significantly.
The most budget-friendly way to do this is to pay 1/12 extra each month. For example, by paying $975 each month on a $900 mortgage payment, you’ll have paid the equivalent of an extra payment by the end of the year.
4. Round up your mortgage payments
Another way you can help reduce the term of your mortgage significantly is to round up. When budgeting for your mortgage payment, round up to the next highest $100 amount. Pay $800 instead of $743. Or $900 instead of $860.
5. Try the dollar-a-month plan
The dollar-a-month strategy should be financially feasible if your income increases slightly but consistently over time.
Each month, increase your payment by $1. Simply pay $900 the first month, $901 the second month, and so on. For a 30-year, $900-per-month mortgage with a 6% fixed interest rate on a loan of $150,000, you could reduce the term of your mortgage by eight years.
6. Use unexpected income
Send any unexpected windfalls straight to your mortgage company. This includes holiday bonuses, tax returns and credit card rewards. Using this money won’t cut into your regular monthly budget.