When you take out a mortgage to purchase a home, along with a proud sense of ownership, comes the desire to pay off the debt as soon as possible. It may seem like a long road ahead, and every time you trade up to a bigger or better place, the amortization clock gets reset. This is one of the biggest investments you will make, and paying it down can slash interest payments and increase cash flow.
Are there ways to shorten the time to pay down your house loan? Fortunately, there are, and it will save you lots of money in interest and give you financial freedom. Let’s go over five strategies to pay off your mortgage early.
1. Refinance the Mortgages
When you consider refinancing, you may think this is a way to take money out of your home. You can do this; sometimes, it’s a great way to free up money for business or other needs. Refinancing to a lower loan term is perfect for those who want to pay off their mortgage faster.
Mortgages Windsor typically last between 25 to 30 years, but you can change it to 20, 15 or even ten years. This will mean higher payments, but your debt will be paid faster and with less interest. It is best to refinance when your mortgage’s current term contract expires, and you may be able to get a lower interest rate too.
2. Switch to Bi-Weekly Payments
A standard mortgage is paid through monthly payments until the end of the amortization period. If you want to speed up the process, you can set it up with bi-weekly payments. It may not seem like much because two half payments every four weeks is close to one payment per month, but those extra few days left over add up over the year, and you make two extra bi-weekly payments. This can knock off four years to a 30-year mortgage and save you thousands of dollars in interest.
3. Make a Lump Payment
Depending on the loan’s terms, you can make a lump payment once a year or monthly, which goes directly on principle. This takes some discipline, so treating it as a bill payment to yourself is best. If you can put together a few bucks every day over the year, you will have a lump sum payment of one month or more.
Ways to put a little extra away each day:
- Bring a lunch from home
- Bring your coffee to work
- Eat breakfast before you leave for work so you can skip the drive drive-through
- Make home-cooked meals instead of restaurants and take out
This may cut into your social time with co-workers who get coffee and lunch out, but they aren’t paying your mortgage down for you. Take that daily $10-$20 and put it in a safe place until the end of the month. Then put it in the bank, and at the end of the year, put that lump sum down on your mortgage,
4. Make Use of Unexpected Income
From time to time, we all get windfalls. This could be in the form of a bonus from work, an inheritance, money from a rewards credit card or even a tax refund. Resist the urge to spend it and instead put it down on your mortgage.
This is extra money that is outside of your regular budget, so you aren’t going to miss it anyway. Let this unexpected income help you gain financial freedom down the road.
When you are young, your goal is to get into the market and ride the wave. You may start in a condo, and then as your family unit grows from yourself to a spouse and then kids, your housing needs change, and you want a bigger place. This usually comes with a new full-term mortgage. You may want to live in that big home until you take your last breath, but it is wiser to trade some square footage for a debt-free residence.
Downsizing is a smart financial move, especially when you are older because you free up money and don’t have to work so hard. Even young people should consider downsizing and streamlining their residential footprint so they can have a better work/life balance. Take advantage of the equity in a larger home and purchase a smaller one so you become mortgage free or have a shorter-term mortgage for the new place.
There is the freedom to pay off your mortgage because housing is something you need all of your life. If you can make it free, you will have more money than a month and can even scale back the time you trade. Use these strategies to pay off your mortgage early so you can retire and live the good life.