Want to pay off your mortgage faster? Here’s what you need to know.

Buying a home is a dream for many. Once you’ve determined when it’s the best time to buy a house, you’ll require a mortgage to make your dreams a reality. Entering into a mortgage commitment can feel daunting, and you will likely ask many questions before buying a home. But take heart! Many homeowners are able to pay off their mortgages years earlier by researching mortgage hacks and following a few simple steps. Here’s what you need to know.

Make Extra Payments:

When making regular mortgage payments, especially at the beginning of your term, the majority of the payment goes towards the interest portion. Making additional payments, even if they are minimal, will go directly towards the principal portion of your mortgage allowing you to pay it off months, if not years sooner.

For example, if your current mortgage payment is $1,111.00 monthly, by adding an additional $100 a month you will be paying your mortgage off 3 years and 6 months ahead of schedule. By doing so, you will also be saving nearly $21,500!

Choose “accelerated” payments:

By choosing an accelerated mortgage payment, either weekly or bi-weekly, you will make the equivalent of one additional monthly payment per year. While this may not feel like much, and probably won’t be noticeable short term, you will be saving money on interest all while paying off mortgage sooner.

Refinance for shorter amortization:

Refinancing your mortgage for a reduction of amortization is an easy wave to shave interest and time off your current mortgage. Shortening your amortization period will mean that the time it takes to pay off the total sum of your mortgage will decrease. For example - going from 25 year amortization to 15 year amortization will require you to pay off the entirety of your mortgage 10 years sooner. Keep in mind your monthly payments will be more, however, the savings on interest will be substantial.

An example would be a current mortgage of $150,000.00 amortized over 30 years at 4% would have monthly payments of $713.28. If that same mortgage was set over 25 years your payments would be $789.04. Over the term of the full mortgage, not only would you be paying off your mortgage 5 years sooner, you will be saving yourself $20,072.41in accrued interest.

Refinance for a lower interest rate - but keep payments the same:

Reducing the interest rate on your mortgage is the simplest way to lower the amount of your monthly payments. However, if you are wanting to become mortgage free faster you can lower your interest rates but keep payments the same. This is a great way to throw additional cash on the principal without feeling the effects of an increased monthly payment.

Take for example a mortgage of $250,000 amortized over 25 years with an interest rate of 5%. The monthly payments would equal $1,461.48. At your 5 year renewal, the interest rate has been reduced to 4%. Your new required monthly payments would be $1,319.59. However, if you left your payments at the original amount ($1,461.48), you pay off your mortgage 2 years and 9 months sooner saving a total of $15,216 in interest.

These are just some of the ways you can free yourself of housing expenses and can assist you with whatever your financial goals are, whether it’s upgrading to a larger home, purchasing an investment property or saving for retirement. The simple steps described in this article can make a big impact on the length of your mortgage and the amount of interest you pay.

Other Helpful Articles

Bad Credit Mortgages are Becoming Mainstream

Mortgages for Self Employed Home Buyers

Top Subprime Mortgage Lenders and what they have to offer