If you are a person that plans for the future then you most likely have given thought about paying down your mortgage. For many families, your mortgage is the largest debt you have above car loans, student loans, credit cards and personal loans. You should put an equal amount of focus on paying off this debt quickly as you plan for your retirement. Here are five easy ways that you can pay your mortgage off faster.
Refinance to a 15 Year Loan and Shorten Your Mortgage Term
A clear answer to pay off your home loan faster is to refinance to a shorter loan term. By shortening your term to a 15 year mortgage or 20 year mortgage, you may be able to avoid thousands of dollars in unnecessary interest over the years of your loan.
For example, if you currently have a 30 year home loan and have paid 5 years, you still have 25 years remaining. Let’s say, your current mortgage payment is $1200 dollars and refinancing to a 15 year mortgage gives you a payment of $1500 monthly. To calculate the total costs of paying off your current mortgage we can use simple math: $1200 x 12 months x 25 years = $360,000 in total payments. After refinancing to a 15 year mortgage we can use the same math: $1500 x 12 months x 15 years = $270,000 in total payments. Refinancing to a 15 year mortgage in this example would save you $90,000 over the life of the loan and allow you to pay off your mortgage quickly.
Enroll in a Bi-Weekly Payment System
Another great option to pay off your mortgage quicker is to enroll in a bi-weekly payment system. There are several great companies that may assist you in paying bi-weekly however it is best to check with your current mortgage servicer to see if they offer this service without additional costs.
Paying bi-weekly is exactly as it sounds; paying a ½ mortgage payment every other week rather than paying once a month. Doing this payment system allows you to pay down the principal faster which saves on compound interest.
Here is the secret to how bi-weekly payments work: If you pay a half payment every other week, that is 26 half payments made in one year (52 weeks in a year / 2 weeks = 26 payments). This is equivalent to 13 full payments (26 weeks x 1/2 payments = 13 full payments) rather than 12 payments made by paying once per month.
Essentially paying bi-weekly allows you to force yourself to pay one additional payment towards the principal annually. The compounding effect of paying bi-weekly on a 30 year mortgage allows you to pay off your mortgage in 24-26 years. Paying your mortgage on a bi-weekly payment system can save you thousands of dollars in interest and help you pay off your home loan sooner.
Apply Unexpected Income to Your Mortgage Principal (holiday bonuses, tax refunds, yard sales)
Throughout the year you may come into unexpected money from things such as holiday bonuses, tax refunds or even cash yard sales. Did your great Aunt Susie pass and leave you a few thousand dollars inheritance? Did you have a good night at the Casino? If you have a high level of self-discipline, you may allow this unexpected money to go to work for you by applying it directly to your mortgage. Applying this additional money to the principal of your mortgage will allow you to pay off your home faster.
Downsize to a Smaller Home to Pay Off your Mortgage Quicker
Another great option to pay off your mortgage more quickly is to downsize to a smaller house. As you get ready for retirement, chances are, you will not need as much space. Your children have already moved out and you have extra bedrooms simply collecting dust. It might make sense to considering selling your home and downsizing to a smaller house or condo.
By selling your current home, you may have equity that you could apply towards the purchase of a smaller, more affordable home or condo. For example, if you sell your home for $300,000 and have a $200,000 mortgage remaining, you would receive $100,000 from the equity. If you buy a new home for only $150,000 then you would only need a $50,000 mortgage. With a home loan that small you should be able to afford a 10 of 15 year home loan which will allow you to be debt free quickly.
Refinance to a Lower Interest Rate and Payment but Continue Paying the Same Amount
The last option to pay off your mortgage more quickly is a less apparent option as the previous examples. Most people would agree that it is beneficial to refinance to a lower rate and payment but many do not think past the initial monthly savings. Rather than buying a new car with the savings from your new, lower mortgage payment, you may want to considering paying the same as you were comfortable paying before your refinance. Every dollar above the minimum payment would go directly towards your mortgage principal and pay off your mortgage quicker.
Use these examples to rethink your retirement and pay off your mortgage quicker. With your mortgage being one of your largest investments, even a small change can compound into major savings over a 30 year period. For a free home loan analysis with a licensed loan officer in your area, call Riverbank Finance at 1-800-555-2098 or request information below.