10 Tricks to Paying Off Your Mortgage Fast
Ask anyone about the American dream and they will most likely tell you that part of it involves buying a home where they can settle down for the rest of their lives while still having plenty of money to live comfortably. Sounds like a simple and beautiful dream, doesn’t it? Unfortunately, buying a home and having plenty of money don’t always go hand in hand as millions of Americans realize that being a homeowner requires a hefty mortgage and high interest rates.
While the real estate and banking industries play on the American dream, reality is that being able to purchase a house and being able to afford it are entirely two different things. Mortgages seemingly drain homeowners of nearly every penny they have while banks enjoy collecting interest on 30-year loans. It’s no surprise then why so many people lose sleep over their mortgage and wonder if they’ll ever actually pay off their loan.
With over 35 percent of homes in the United States tied to a mortgage, there are plenty of people who are looking for expert advice on how to pay off their mortgages quickly to enjoy a new sense of financial freedom. Rather than searching the internet and spending hours looking for reliable sources, we brought the tips to you as we take a look at 10 tricks to paying off your mortgage fast. Get ready to say “Goodbye” to your monthly house payment and “Hello” to more money in your pocket!
#10 – Know the Penalties
Before we dive into the advice portion of our list, first we want to preface it with this: know what types of penalties come with your mortgage for any type of payments. Why is this important? Believe it or not, banks actually don’t want you to pay your mortgage off early because they will end up missing out on a lot of interest that you once promised to give them when you signed the loan. To make up or to avoid thousands of dollars in lost interest, banks typically enforce a prepayment penalty.
While it is more common to see these penalties enforced on adjustable rate mortgages, they can also be found on fixed rate mortgages. In any case, it is vital that you know how much the penalty would be long before you even make plans to pay off your mortgage early. Additionally, each state has its own laws regarding how much banks can legally penalize you for paying off the loan early, so always ensure that your lender or bank is obeying the law especially when it comes to your financial well-being and future.
#9 – Pay More Each Month
Although it sounds simple, the easiest thing you can do to pay off your home faster is to pay more each month than your original or standard loan payment. Though many people with mortgages have the means to pay more each month on their home, they often choose to set aside the money for other purposes. This, however, does nothing to actually speed up the process of paying off your home. It’s actually smarter to pay more now so that you can set aside money in the future when you have far less tied up in debt.
Consider your current employment and financial situation. Typically, your salary will continue to grow as your career progresses and, in a few years with a higher net worth and no real estate debt, there will be plenty of money to set aside for retirement. Even if you pay an extra $40 or $50 toward your mortgage each month, it may not seem like much but it definitely adds up in the long run and will undoubtedly lead you to thank yourself later.
#8 – Shorter Terms
Like we mentioned, a lot of people have the ability to pay more each month on their mortgage but that’s not the only strategy available as they can also shorten their loans. By refinancing with a lender, the terms on a mortgage can reduce significantly while also raising the monthly payments to a higher price over a shorter amount of time. While this may seem like a disadvantage at first, it could prove to be beneficial if homeowners are already paying more each month.
Paying more each month on your mortgage results in your loan being paid faster while also reducing the interest rate. It’s actually a trade-off that is certainly worth the investment to those who can afford it because the closer you get to the end of your mortgage, your payments are generally going toward the accrued interest anyway. Refinancing is a great way to ensure that you are paying only for the house you bought and not a penny more.
#7 – Take Advantage of the Banks
Perhaps you haven’t purchased a house yet, but that’s your dream and your next big financial move. If high mortgage rates cause you to hesitate on making a purchase, there is a better (and often overlooked) way that can help ease your worry. More often than not, your first home is typically not your dream home and, once people realize this, they have an easier time accepting the next tip on our list: looking at foreclosures to save money and benefit from low interest rates.
Real estate mogul and 2016 presidential hopeful Donald Trump says, “The banks don’t want these [foreclosed] homes; they’ve got thousands of them. They don’t know what to do with them.” To get these houses off the market then, banks are willing to lower the prices to encourage buyers despite making very little off the interest. Because of this, first-time homebuyers can reap the benefits of negotiating the price on a foreclosed property that generally results in a mortgage payment that is well under budget!
#6 – Trim Other Bills
The next piece of advice on our list definitely ties into paying more each month on your current mortgage. If you don’t have the extra money to put toward your house payment right now, how could you go about getting the money to do so? While it may not be pleasant, cutting back on your other bills and expenses is one of the easiest ways to find extra money. In fact, some of those luxury items like eating out five nights a week or a monthly magazine subscription can be better enjoyed after your mortgage is paid off and you have more money left over.
Many people have taken up cord cutting by giving up on cable and switching to internet-only services. This option is much cheaper and can save you anywhere from $50 to $100 or more per month. Another bill that also has a lot of potential to be trimmed is your cell phone. Look over your data plan and compare it with your usage. Can you cut back? Do you need the newest iPhone or can you wait until a free upgrade? Taking a serious look at your bills can help you put more money down today on your home to build a better and more secure financial future.
#5 – Give Your Extra Money
If you have continued to pay more than your monthly payment and have cut costs so that you can pay even more, what’s the next step? If paying off your home fast is truly your goal, then you should ensure that anytime you have extra money that it goes toward the mortgage before anything else. While you most likely have a savings account set aside for emergency funds, the money that is left over should be used to help pay down your mortgage. It’s that simple!
Some of the savviest homeowners who have paid off their mortgages early have generally put all or a large part of their tax returns toward their mortgage, which can be a pretty sizable figure. Though this may not be a practical solution for everyone, others have taken on odd jobs to bring in extra cash to put toward their payments. Although you don’t necessarily have to start a lawn business or work seven days a week, you could easily put a holiday bonus or extra income toward your mortgage since any amount – large or small – helps.
#4 – Lower Rate
In addition to refinancing your mortgage with the lender to get a shorter term, you can also lower the interest rate. Over the past few years, banks have been more than willing to refinance homes in order to take advantage of the lower interest rates set by the Federal Reserve. As a result, there has been more than a 200 percent increase in refinancing, so why not join in on the lower payment and lower interest fun?
If and when you decide to refinance and lower the interest rate on your mortgage, be sure to take advantage of the offer quickly. In the midst of the 2016 presidential campaign, even presidential hopeful Donald Trump has cautioned that refinancing will likely decrease in the future. As a real estate developer, Trump admits that he has enjoyed the lower interest rates of refinancing but also says that it could be setting up an economic recession for the next President. Either way, the clock is ticking!
#3 – Pay Every Two Weeks
Most standard mortgages are set up on a monthly basis that require homeowners to make large payments on the same day every month. While this is the most common method, it is not the only payment option and may not be the most advantageous. Rather than paying one lump sum each month, those looking to pay off their mortgage earlier often visit with their banks or lenders to set up a bi-monthly payment plan that allows them to make smaller payments every two weeks.
In setting up bi-monthly payments, the total monthly payment remains the same but it is split into a more budget friendly structure. For example, rather than paying $1,500 once a month, you pay $750 every two weeks. Not only is this easier on the wallet, it can also help trim down the interest on your mortgage. And, while there may not be a dramatic difference, even a one percent savings can help you meet your goal of paying off your mortgage quickly.
#2 – Set a Goal Date
Have you ever heard about the power of positive thinking? What about the power of setting goals? People who have a plan with a set goal and timeline are more likely to not only achieve their goals but to do so ahead of schedule. If you’ve ever set a goal for yourself in the past, you know that once you see the first sign of progress then you are even more motivated and addicted to reaching your goal as soon as possible. This goal-oriented mindset also works wonders when it comes to your mortgage.
Quoted twice before we look to Donald Trump once again who made his way to the top of America’s real estate market by setting goals. Trump said, “If you’re going to be thinking anything, you might as well think big.” Though he was talking about real estate and building his wealth, this can be applied to anything from setting personal weight loss goals to professional benchmarks. In fact, if you apply it to paying off your mortgage, you just might be so determined that starting that lawn business to earn extra cash won’t seem so crazy after all!
#1 – Reward Yourself
Like reaching any other goal, it’s always good to set some time aside and reward yourself every once in a while so you don’t get discouraged or lose interest. Using the example of weight loss, many people often reward themselves for hitting their target weight with a special treat like a new pair of jeans, a special meal or a day at the spa. The same principle is true as you pay off your mortgage, but what might that special reward look like?
If you have been able to trim a few thousand dollars from your mortgage over the past six months, you could easily reward yourself with $100 of spending money to do whatever you want! Whether it involves going out to a nice dinner, buying concert tickets or splurging on some new clothes, rewarding yourself for making sacrifices is a welcome treat especially when you’ve made progress toward your goal. Even knowing that you can enjoy a reward gives you a taste of what it’s like at the end of the road when you can enjoy a better sense of financial freedom.