Are you one of the millions of Americans who financed the purchase of your home? Taking out a mortgage is a great way to become a homeowner. But if you’re able to pay off that debt quickly, you can free up money for other things such as an early retirement or a dream vacation. While it may seem impossible to pay off your mortgage early, it can be done. Here are some expert tips on how to pay off your home loan faster.
Buy an affordable home
While it may go without saying, we will say it anyway. The easiest way to pay off your mortgage faster is to buy a home you can afford. Stretching to make your mortgage payments each month is stressful. It can also make it tough to put any extra money towards those payments. Instead, stay well within your budget.
Instead of making your full mortgage payment once a month, pay half of it every two weeks. Because there are 52 weeks in a year, this results in making one extra monthly payment a year. Believe it or not, that can reduce your 30-year loan by as much as six years. Check with your mortgage company to see if they have a bi-weekly payment plan. Some will allow you to enroll in these plans for a small fee.
Make extra payments
If you’re not able to set up a bi-weekly payment plan, there are still options for you. You can make an extra payment each quarter, for example. This could shave up to 11 years off the term of your loan and save you thousands of dollars in interest. If that is too steep for you, consider making one extra payment each year. Be sure to earmark the payment to be used toward the principal balance. This could reduce the time of your loan by as much as seven years.
Use your tax refund
If you don’t have the extra money from month to month to swing an additional payment, there is another way to find that money. Are you expecting a tax refund next year? Then use that money to make the extra payment toward your mortgage. Since the average tax refund in 2018 was $2,899, you could end up paying off your mortgage several years early.
Make a bigger down payment
If you have the means, then make a bigger down payment when you purchase your home. You can save money on private mortgage insurance (PMI) if you put down at least 20 percent. The more money you put down, the smaller your monthly payments will be. If your payments are manageable, it will be much easier to pay extra and pay off your mortgage faster.
Pay down other debts first
You may not realize it, but you may be able to pay off your mortgage faster if you pay down your other debts first. This is especially true if you have high-interest credit cards. If you can pay those debts off first, you will save yourself from making high interest payments. Those savings can eventually be applied toward payments on your mortgage.