Tips to Paying Off Your Home Loan Faster
Whether you’ve found your dream home or something to use as a stepping stone toward your next adventure, having a mortgage doesn’t have to weigh you down. We have a number of tips for paying off your home loan faster, which can be especially useful if you plan to rent out your home. Not having a monthly payment can reduce the overhead costs of property management.
Before you consider tackling your home loan, make sure you’ve examined your other debts first. Take a look at the interest rates on other loans you may have, as well as credit cards. Student loans, store credit cards, and automobile loans typically tend to have higher interest rates than a home loan; paying them off first makes the most financial sense. As you systematically resolve those debts, you can snowball those payments into your mortgage.
Even if you’re living in a forever home, it can be freeing to pay off your mortgage before the 15- or 30-year estimate. If you’re wise with your money now and try one of these tips, you can reap the rewards sooner rather than later.
Depending on your mortgage lender, you may be able to alter your payment frequency. Check to ensure there aren’t any fees for paying more than once per month, or for periodically adding an extra payment here or there.
Make Biweekly Payments – You may think that simply splitting a monthly mortgage payment in half and making payments biweekly won’t have much effect. Isn’t it the same amount of money being put toward the loan regardless? That’s actually not the case! When you make biweekly payments, you’re continually decreasing the principal amount owed, which means the interest is less with each payment. Depending on the interest being charged, making biweekly payments on a 30-year loan can help you pay off your home loan up to six years faster.
Make One Extra Payment Quarterly – If making biweekly payments doesn’t work for your budget, or if there are penalties for paying frequently, you could consider making one extra payment quarterly. Over time, you can save thousands on interest as you reduce the principal amount with regularity.
Make One Extra Payment Yearly – It may not seem like much, but putting one extra payment toward your mortgage each year can have an impact. Whether you simply budget for it based on your income or you use your tax return to put toward an extra payment, doing so regularly can take up to seven years off your 30-year mortgage. Making an extra payment annually can be a budget-friendly way to pay off your home loan early.
As always, it’s recommended that you check with your mortgage lender before altering the monthly payment amount. However, it’s worth looking into to help you pay off your home loan faster.
Increase Principal Amount Paid – Did you know some lenders allow you to choose how much of your payment goes toward the principal and how much goes toward the interest? If this is a possibility for you, consider designating an extra amount toward the principal. The smaller the total amount owed each month, the less interest will be charged. This is a good tactic for paying off your home loan faster if you don’t have a lot of extra money to put toward the mortgage, but still want to get ahead. If your mortgage is $995 per month, consider rounding up to an even $1000 and see the progress gradually add up!
Refinance Your Mortgage – The goal of refinancing a mortgage is to get a better interest rate or a shorter term on an existing loan. With lower interest, the overall amount paid toward the loan can go down significantly. Even if you keep the same interest rate, reducing the loan term from 30 years to 15 years can help you pay off the home loan more quickly. Refinancing is a great way to change your payment amount and work towards using the money for other investments.
What to Do When You’ve Paid Off Your Home Loan
When you pay off your home loan faster, you’re free to use the money for more lucrative investments, such as a Mutual Fund, 401(k) or a 529 College Plan. Of course, you can also use the freedom to invest in a second home, whether for yourself, to use as a rental, or for vacations. Whatever you choose to down, enjoy living free of your mortgage!