Your mortgage is a long-term debt that can become a financial burden over time.
The decision to pay off a mortgage early is a highly debatable topic.
However, if you are at a stage in your life where you have paid down a lot of your other debts and dealt with various other major financial goals, paying off your mortgage earlier can make a lot of financial sense.
Simply throwing in a bit extra towards the principal loan amount each month can go a long way in getting out of an entire year’s worth of payments.
Depending on how much extra you are able to pay, it can easily shave off a few years off the debt.
Depending on your budget, here are 8 ways in which you can pay off your home and retire earlier:
Refinance Your Mortgage to A 15-Year Timeframe
One the best ways to guarantee that you’ll be able to pay off the mortgage earlier is to refinance it from the standard term of 30 years, down to 15 years. Not only will this mean that you end up paying a lower interest rate, but also end up paying a far lower amount in the long term.
This step can help you save literally hundreds of thousands of dollars over the life of your loan, in terms of interest. It’s important to consider whether you would be able to comfortably afford to make the higher monthly payments for the next 15 years.
Maintain The Payments, While You Refinance
It isn’t uncommon for people that refinance to do this in order to reduce monthly payments. However, when you refinance, it also helps reduce the interest rate as you continue to make the exact same monthly payments.
This gives you more budget flexibility, and you are also able to make a payment towards your mortgage principal amount each month without actually increasing the payment.
Channel Your Pay Raises Towards Your Mortgage
When you get bonuses or raises from your job, channel those towards your mortgage. The objective is to put in the same percentage towards the mortgage, even after a raise.
For example, if you are currently diverting 20% of your income towards your mortgage payment, even after every annual raise, you should still continue putting the same percentage towards it.
If you are able to maintain a comfortable lifestyle, without the raise amount factored in, you should consider putting the entire amount towards the mortgage balance.
Pay Some Additional Amount Each Month
If you consistently add even a small amount, between $50 and $100 to your mortgage payment each month, it can make a huge difference in the long term. This will help you pay your mortgage off sooner, and you can save a significant amount of interest.
The only challenge with this particular approach is that you need to see it through. In order to reap these benefits, you need to be proactive with channeling that extra $100 towards your mortgage payments each month.
Add Lump Sum Amounts When You Have A Cash Influx
If you have any kind of cash windfalls such as a work bonus, a yearly tax refund or an inheritance, put that entire lump sum amount towards your mortgage. The size of the windfall will decide exactly how much of a difference it makes.
What makes this a very good option is that you can apply these payments directly towards the principle for the loan.
Make your payments on a biweekly basis
If you choose to make your mortgage payments on a biweekly basis, it will also mean that you make an extra payment on your mortgage each year. When you make 26 payments annually, that can take out approximately five years off a standard 30-year mortgage.
You can do this in two different ways – you have the option to log in and manually make the mortgage payment every fortnight. This is a good option especially if this aligns with the day on which you get paid.
The other option is to set up automated payments such as a free bill pay service.
Set A Fixed-Target Date For Payoff
When you set a fixed targeted date for the pay-off, you are able to see exactly how much extra you have to pay every month, in order to be free of the mortgage by a specific date.
This gives you the motivation you need to mark your calendar and celebrate the achievement.
Use A Combination Of Methods
You don’t really need to stick to just one of these methods. You can also mix and match in order to pay off your home earlier.
For example, you can choose to use your tax refund amount every April as well as a certain smaller amount each month in order to see double benefits. This will help you pay off the loan even earlier.
When it comes to personal finances, every penny counts. Stay focused on paying off your mortgage and you will find that it really is possible to save yourself some interest and retire earlier.