So, you’re eager to pay off your mortgage early? That’s a great financial goal to set for yourself!
Being completely debt-free and living in a paid-for home not only offers you a great deal of freedom, but it’s also a great way to accumulate wealth because you’ll have a lot more money each month to save for retirement when you eliminate your house payment. In fact, the average millionaire pays off their house in just 10. 2 years. 1.
We’re going to walk through exactly how to pay off your mortgage early so you can achieve your goal and become a debt-free homeowner, but even though you’re set on paying off your mortgage ahead of schedule, you probably have one big question in mind: How do I pay off my mortgage faster?
Are you eager to ditch your mortgage and live debt-free in your own home? If so, you’re not alone. Millions of Americans dream of achieving this financial milestone, and the good news is, it’s totally possible!
In this guide, we’ll dive deep into five powerful tips that will help you pay off your mortgage faster and achieve your financial goals. Get ready to say goodbye to that monthly payment and hello to a life of freedom and financial security!
Tip #1: Make Extra House Payments
This might seem like a no-brainer, but every extra dollar you throw at your mortgage makes a significant difference. Even making just one extra payment per year can shave years off your loan term and save you thousands in interest.
Let’s crunch some numbers. Imagine you have a $240,000, 30-year mortgage with a 7% interest rate. Your monthly payment is $1,597. If you made an extra payment just once every quarter you’d pay off your house nearly 15 years early! That’s cutting your mortgage in half and saving a whopping $184000 in interest.
Tip #2: Make Extra Room in Your Budget
You might be thinking, “I don’t have any extra money to put towards my mortgage!” But hold on, there’s probably more wiggle room in your budget than you realize.
Start by creating a budget if you haven’t already. Track your income and expenses, and make sure you’re not overspending. Then, look for areas where you can cut back, like:
- Lower your grocery budget: This is often one of the biggest expenses after housing, especially if you have a family. Consider changing stores, shopping sales, and buying in-season produce.
- Stop eating out so much: Cooking at home is significantly cheaper than eating out, sometimes by a lot. Cooking just 2-3 more times per week can save you a ton in the long run.
- Do an insurance coverage checkup: An independent insurance agent can help you find cheaper rates for your coverage.
- Cancel some subscriptions: You probably have more subscriptions than you actually use. Cancel those you don’t need and put the extra cash towards your mortgage.
- Cut back on online shopping: It’s easy to rack up purchases on Amazon and other online retailers. Be mindful of what you buy and avoid impulse purchases.
Tip #3: Refinance (or Pretend You Did)
Refinancing your mortgage to a shorter term or a lower interest rate (or both) is another effective tactic. Let’s examine how this impacts our previous example: a $240,000 mortgage with a 7% interest rate over a 30-year term.
Over the course of the 30-year mortgage, you would pay roughly $335,000 in interest if you kept the loan and made all of your payments on time. However, if you opted for a 15-year mortgage with a cheaper interest rate of 6 5% would allow you to save almost $200,000 and pay off your house in half the time!
Tip #4: Downsize
Downsizing your home might sound drastic, but it can be a game-changer if you’re serious about paying off your mortgage faster. Consider selling your larger home and using the profits to buy a smaller, less expensive one.
You might even be able to use the profits to pay the down payment on your new house in cash. Your debt will be reduced and your payments will be smaller even if you require a small mortgage.
Tip #5: Put Extra Income Toward Your Mortgage
You know what a lot of people do when they get a raise, promotion, or bonus? They start spending more money, often without even realizing it. This is called lifestyle creep, and it can derail your financial goals.
Instead, treat your income boosts as opportunities to save more. Pay off your mortgage with all of your excess income, including bonuses, raises, profit-sharing, and gifts for the holidays. It’s okay to treat yourself occasionally, but don’t let lifestyle creep take over.
Remember: Your goal is to get rid of your mortgage as quickly as possible. Use these tips to accelerate your payoff and experience the incredible feeling of freedom that comes with being debt-free!
Refinance (or pretend you did).
Swapping your mortgage for a new loan with a shorter term or a lower interest rate (or both) is another method of paying off your mortgage early. An example of this would be a 15-year fixed-rate mortgage. Let’s see how this would affect our earlier example—a 30-year $240,000 mortgage with a 7% interest rate.
Over the course of the 30-year mortgage, you would pay roughly $335,000 in interest if you kept the loan and made all of your payments on time for those three decades. But if you switch to a 15-year mortgage with a lower rate of 6. 5%, you’ll save close to $200,000—and you’ll pay off your home in half the time!.
Sure, a 15-year mortgage will come with a bigger monthly payment. Nevertheless, if you can comfortably fit it into your monthly budget (i.e., the payment is at or below 25% of your take-home pay), it will definitely be worthwhile. Additionally, keep in mind that since you first took out your mortgage, your income has probably increased or your cost of living has decreased; in that scenario, you would undoubtedly be able to afford the larger payment.
Speak with a specialist at Churchill Mortgage if you wish to refinance into a mortgage that you can pay off quickly. Because of our team’s years of experience working with Churchill Mortgage, their mortgage experts will demonstrate to you the true cost—as well as any savings—of each loan option. They’ll also coach you to make the best decision based on your budget and goals.
If you already have a low interest rate on a 30-year loan, don’t worry about refinancing. Go ahead and treat your 30-year mortgage like a 15-year mortgage by upping your monthly payment.
Downsizing your house may sound like a drastic step. However, if you’re determined to pay off your mortgage sooner, think about selling your larger house and putting the proceeds toward the purchase of a smaller, less costly one.
With the money you make from selling your larger home, you might be able to buy your new house with 100% cash. However, even if you do have to take out a small mortgage, your debt will still be reduced, and your payments will ultimately be lower.
Remember though: Your goal is to get rid of that new mortgage as quickly as possible. So use the smaller balance and lower payments you get from downsizing to accelerate paying off your home. This isn’t an excuse to pocket money in the short-term and delay your payoff.
Hiring a first-rate real estate agent to assist you in selling your current home and purchasing a new one should be your first move if you decide that downsizing your residence makes sense for your circumstances and you’re prepared to begin the process.
Through our RamseyTrusted program, which pairs you with professionals our team has screened to ensure they understand how important it is to buy a home you can afford, you can locate one in your area. They won’t pressure you to consider homes that’ll bust your budget.
Make extra house payments.
Alright, so you probably don’t need me to remind you that each dollar you contribute to your mortgage payment increases the amount of principal that is owed. And that implies that you can shorten the length of your mortgage by years and avoid paying thousands of dollars in interest if you make just one additional payment each year.
How does that work? Let’s crunch the numbers. We will inform you that you have a $240,000, 10-year mortgage with a 7% interest rate and a $1,597% monthly payment for your principal and interest. A mere extra payment once a quarter would result in nearly 15 years of early home payoff! That’s a half-life savings on your mortgage and an incredible $184,000 in interest savings over the course of the loan!
Use our free mortgage payoff calculator to see how much time and money you would save in your particular situation by making extra house payments.
But before you start making those extra payments, let’s go over some ground rules:
- Check with your mortgage company first. Certain companies may impose prepayment penalties or only accept additional payments during designated periods.
- Put a notation on your extra payment indicating that you would like it applied to the principal amount rather than the payment for the next month.
- Refrain from enrolling in a glitzy mortgage acceleration program that requires biweekly payments (more on those later). You can achieve the same result on your own if you are focused and deliberate.
How To Pay Off a Mortgage
FAQ
What happens if I pay 2 extra mortgage payments a year?
Can you pay off a 15 year mortgage early?
How much extra do I pay off my mortgage in 15 years?
How much faster do you pay off a 15 year mortgage with biweekly payments?
How much money do you need to pay off a 30-year mortgage?
Assuming you have a $200,000, 30-year mortgage at a 7% interest rate, you’d need to pay about an extra $500 a month toward your principal to drop your repayment period from 30 to about 15 years. That may be a tall order for many households, but smaller payments can still make a dramatic difference in your payoff period and interest savings.
How do you pay off a 30-year mortgage faster?
Consider an adjustable-rate mortgage. To pay off your house faster with this option, split your monthly mortgage payment amount in half and send it every two weeks. By the end of the year, you’ll have made the equivalent of 13 monthly payments. This strategy can shave four to six years off a typical 30-year loan, depending on your interest rate.
How long does it take to pay off a home loan?
The unpaid principal balance, interest rate, and monthly payment values can be found in the monthly or quarterly mortgage statement. The remaining term of the loan is 24 years and 4 months. By paying extra $500.00 per month starting now, the loan will be paid off in 14 years and 4 months. It is 10 years earlier.
Can you pay off a mortgage early?
However you arrange it, making an extra payment each year is a great way to pay off a mortgage early. As an example, if you took out a mortgage for $200,000 on a 30-year term at 4.5%, your principal and interest payment would be about $1,000 per month. Paying one extra payment of $1,000 per year would shave 4½ years off your 30-year term.