The Urban Institute reports that nearly 27 million Americans own their home outright, some buying them with cash up front, and others whittling away at mortgages, paying them month after month, year after year, until finally, they were a thing of the past.
Two-thirds of Americans who own homes had to take out a mortgage to finance the purchase, and if you’re like one of them, the good news is that you don’t have to wait decades to pay it off. After searching through those Atlanta homes for sale, or wherever you happen to buy, securing your mortgage and settling in, it’s time to think about getting that loan paid off as quickly as possible.
Fortunately, there are multiple easy ways to make that last mortgage payment come sooner rather than later, including these.
Pay a little more than you have to every month
While this one is obvious, you might be surprised to find how paying a little extra each month can really add up, and help you save a ton of interest too. For example, you take out a $200,000 mortgage at 4.5 percent interest. You’ve been making the regular, minimum payments every month for five years, but after that, you add an extra half-month’s principal and interest when you make your monthly payment. By doing that, you’ll save over $18,000 in interest and pay your mortgage 39 months earlier.
Just be sure to check with your bank or loan agent to find out what to do to ensure those additional payments are correctly applied. Typically, including a note on your extra payment asking for it to be applied to the principal balance rather than the next month’s payment will work. Keep in mind that some companies only accept extra payments at certain times, or they might tack on prepayment penalties.
Another option is to make your mortgage payments bi-weekly. Instead of paying one monthly payment, you pay half the payment every two weeks which will result in 13 full monthly payments every year. While that may not sound like a lot, it can take eight years off a 30-year mortgage depending on your interest rate.
Refinance with a shorter-term loan
If you have a 30-year mortgage and can refinance it by taking out a 15-year loan instead, you’ll obviously knock lots of time off the mortgage, blasting through it quickly and likely getting a better interest rate at the time. The result is, you’ll shell out far less in interest, which means payments on a 15-year loan aren’t going to be double of what you’re paying on a 30-year loan, rather quite a bit less. Use a mortgage calculator to determine how much you’ll have to pay. If the payment is too high, a 20-year loan option will still help you pay it off much earlier.
Put Unexpected Money Toward Your Mortgage
You probably get an unexpected windfall at least occasionally, such as a work bonus, gift from a relative, selling a pricey item, and so on. Then there’s that tax refund, if you’re like most taxpayers you get one every year. Instead of blowing all that cash, use it to pay down your mortgage. You won’t miss the money since you’re not used to having it, but it can make a big difference in getting that mortgage paid off quicker.