The day the mortgage bank told you that you were prequalified for a loan to buy a home might have been one of the happiest in your life. But now that you’re a few years into the mortgage, you just want to be finished with it. Paying off your mortgage faster not only helps you become debt free more quickly, it also means that you pay less over the life of the loan, giving you more money in your pocket to do the things you love.
Divide your payments
Most mortgages feature a monthly repayment schedule. If you divide your payments into biweekly payments, you end up putting more towards your mortgage every year, reducing the length of repayment. When you pay every other week, you end up making 26 payments, not 24. That means you make one additional monthly payment to the mortgage bank each year. It might not drastically shorten the amount of time you spend paying off your mortgage, but it will help a bit.
Do your research before you split your payments, though. Your lender might charge a fee for biweekly payments, for example, or it might not accept them.
Add to your payments
If you can afford it, the simplest way to pay off your mortgage more quickly is to pay more each month. For example, you can add $100 or $200 to your monthly payment. If you can’t afford to add to your payment each month, make an effort to send any extra money you get directly to your mortgage. You might allocate your tax refund to your mortgage, for example, or send your holiday bonus to your mortgage.
Check with your mortgage bank to make sure any extra payments are put towards the principal on the loan right away. Some lenders will hold extra payments until the next month, which won’t help you pay off the loan faster.
Refinance to a shorter term
Refinancing your home loan might be a great way to take advantage of lower interest rates and will help cut the repayment term considerably. One option is the Super Saver 25 loan, which shaves five years off of the standard repayment term (30 years). In exchange for a shorter loan term, you pay slightly more per month. Depending on how big your mortgage is, the shorter term can mean you save thousands of dollars over the life of the loan, thanks to both a shorter payment term and a lower interest rate. If you can afford a much bigger monthly payment, refinancing to a 15- or 20-year mortgage will help you pay even less over the course of the loan and will help you say goodbye to your mortgage even sooner.
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