Introduction: Many homeowners dream of the day they pay off their mortgage, and for good reason. It means no more hefty monthly payments, no more costly interest charges, and it frees up thousands in extra cash flow. However, since most U.S. mortgages have 30-year terms, it usually takes decades to pay off a mortgage. Are you looking for financial freedom a bit earlier? It’s possible, but it takes some planning. Read these seven tips for how to pay off your mortgage faster and decide which are the best for you.
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Make Biweekly Mortgage Payments One of the best ways to pay off a home loan fast is to make biweekly mortgage payments. With this strategy, you take your monthly mortgage payment, divide it in half, and make that half payment every two weeks (for example, every other Friday) to your mortgage lender. Since there are 52 weeks in the year, this amounts to 13 full monthly payments annually. It can shave years off your loan and thousands of dollars in mortgage interest over time.
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Make One Extra Mortgage Payment Per Year If biweekly payments don’t align with your paydays or you just don’t want to deal with the hassle of paying every two weeks, commit to making one extra mortgage payment per year—at any point in the year (maybe when you get your annual tax refund or holiday bonus). This will reduce your mortgage principal balance faster and cut down your long-term interest fees by quite a bit. Just be sure to tell your lender to apply these extra payments directly to the principal.
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Make Occasional Extra Payments Toward Your Principal Another option is to simply make an extra payment once in a while. It may not be as effective as paying extra consistently, but every little bit counts when you’re paying interest. A good idea is to use this strategy with windfalls—unexpected money you come into throughout the year. This can include things like inheritances from loved ones, tax refunds, birthday gifts, or big tips or commissions. And don’t forget to tell your lender to apply these extra payments to your mortgage principal, not your interest or any other fees.
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Round Up Your Mortgage Payment You can also consider rounding up your mortgage payment. If your payment is $2,661.21, as in the above example, you might round up to $2,700 if your cash flow allows it. Again, make sure your lender puts that extra money toward the principal, and it should make a notable difference in your long-term interest costs and payoff timeline.
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Refinance to a Lower-Rate Mortgage Refinancing your mortgage is another strategy that can help you pay off your loan faster. If you can secure a lower mortgage rate than what’s on your current loan, that’s the best option. Not only will this reduce your interest costs right off the bat, but if you continue making your old, larger payment on your new loan, it can significantly impact your payoff time. For instance, if you have a $250,000 loan balance with an 8% rate and a 30-year term, you’re currently paying about $1,834 per month. If you refinanced that loan into a new 30-year loan at a 6.75% rate
