How to Pay Off Your Mortgage Faster

Before we get into a discussion of how to pay off your mortgage loan faster, the question you need to ask yourself is “Should I pay off my mortgage early?” As a homeowner, you already know that most financial experts consider your home mortgage loan “good debt” and your home a reasonably safe investment. So, when you’re paying down your mortgage, you are essentially putting money into your home. The question is, “is there somewhere better my money should be?” Prioritize your short term financial needs (bills, utilities, groceries), medium term financial needs (education, home improvements) and the unforeseeable (your emergency fund). Lastly, you need to consider if you might want to put your money towards an investment that could potentially make you more money, such as stocks, investment properties, a small business or mutual funds.

Once you’ve considered all these options, weighed them out, and decided that owning your home free and clear sooner and savings tens of thousands of dollars in interest is important to you, it’s time to start exploring the best ways to pay off your mortgage faster.

Mortgage Acceleration Plans

Typically, you make mortgage payments on a monthly basis. But by making additional payments per year, you can be free of your mortgage sooner. The most popular method is called the bi-weekly mortgage payment plan. Instead of making monthly payments, you make a half payment once every two weeks, which ends up being the equivalent of 13 full mortgage payments. This will pay your mortgage off about 5 years earlier on a 30-year fixed mortgage. It’s also preferable because it spreads out the extra costs across the entire year, making it easier to budget.

Lump Sums

You can also pay down your mortgage by making an additional payment once a year. This can be whenever you have extra money on hand, or based on an expected boost in income, such as a holiday bonus.

Refinance

One obvious way to shorten the life of your loan is to refinance your mortgage for a shorter term. For example, if you have a 30-year mortgage, you can refinance for a 15-year mortgage. The drawbacks will be that you will have to pay loan origination fees and mortgage closing costs again, your monthly payments will be much higher, and you won’t have any flexibility in case you can’t meet the higher payments some months. The benefit is that you may be able to negotiate a lower interest rate in the process, which will save you even more money.

Make Higher Monthly Payments

You can also keep paying once a month, but increase your payment. Make sure that you either send a separate check, with the memo indicating that the extra amount should be applied to the principle, or let your bank know to apply the additional amount to the principle in some other way.

With the above methods, you can own your home outright and stop paying mortgage interest sooner. Before you undergo any type of plan to pay down your mortgage faster, make sure you talk with your mortgage lender to ensure that you won’t incur any penalties and to check to see if they have any programs in place for borrowers who want to make additional payments.