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 tired of throwing money away on interest payments? Do you dream of owning your home free and clear? Then paying off your mortgage early might be the perfect goal for you.
But how do you actually do it? What are the best strategies to shave years off your mortgage term and save thousands of dollars in interest?
Don’t worry, we’ve got you covered. We’ll go over the best ways to pay off your mortgage early in this extensive guide, including refinancing and making extra payments. We’ll also provide you with all the information you need to reach your financial objectives and respond to your urgent questions.
So fast forward to the part where you learn how to become a homeowner without a mortgage faster than you ever imagined!
5 Simple Ways to Pay Off Your Mortgage Early
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Make Extra Payments: This is the most straightforward and effective way to accelerate your mortgage payoff. Even making one extra payment per year can shave years off your loan term and save you a ton of money.
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Refinance Your Mortgage: If you can snag a lower interest rate, refinancing your mortgage can significantly reduce your monthly payments and allow you to pay off your loan faster Just be sure to factor in closing costs and ensure the new loan term isn’t longer than your current one.
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Downsize Your Home: If you’re willing to make a big move, downsizing to a smaller, less expensive home can free up a significant amount of cash that you can use to pay down your mortgage.
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Put Extra Income Towards Your Mortgage: Whenever you receive a bonus, raise, or unexpected windfall, consider putting it all towards your mortgage. This can significantly accelerate your payoff timeline and help you reach your goal faster.
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Cut Back on Expenses: Analyze your budget and identify areas where you can cut back on spending. Every dollar you save can be put towards your mortgage helping you pay it off faster.
Additional Tips for Paying Off Your Mortgage Early
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Make biweekly payments: Rather than paying each month, think about sending in half a payment every two weeks. This will cause you to make an additional payment annually, thereby shortening the duration of your loan.
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Round up your payments: Round up your monthly payments to the nearest hundred or thousand dollars. This small change can add up over time and help you pay off your mortgage faster.
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Use a mortgage payoff calculator: These handy tools can help you estimate how much you can save by making extra payments or refinancing your loan.
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Speak with a financial advisor: They can assist you in creating a customized strategy to pay off your mortgage early and reach your financial objectives.
Frequently Asked Questions
Q: How much extra should I pay on my mortgage each month?
A: The amount you should pay extra depends on your budget and financial goals. However, even a small amount of extra payment can make a big difference over time.
Q: Is it worth it to refinance my mortgage?
A: It depends on the interest rate you can get and the closing costs involved. If you can get a significantly lower interest rate, refinancing can save you a lot of money in the long run.
Q: What are the risks of paying off my mortgage early?
A: There are very few risks associated with paying off your mortgage early. However, you may want to consider keeping some money in reserve in case of unexpected expenses.
Paying off your mortgage early can be a life-changing financial decision. By following the tips and strategies outlined in this guide, you can achieve your goal of becoming a mortgage-free homeowner faster than you ever thought possible. Remember, it’s all about making smart choices, being disciplined with your finances, and staying focused on your goal.
So, what are you waiting for? Start taking action today and see how quickly you can reach your dream of owning your home free and clear!
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 room in your budget.
I know you were thinking after reading the last section, “But I don’t have any extra money to put toward my house payments,” but hold on, you probably have more money than you think in your monthly budget.
Now, if you aren’t already making a budget every month, start there. To ensure you are not overspending, write down your income, make a list of your expenses, deduct those costs from your income, and then monitor your monthly spending to make sure you are staying within your budget.
Here are some changes you can make to your budget if you are already living on one, or if this is your first time creating one, to free up funds for an early home payment.
- Lower your grocery budget. Apart from housing, groceries are probably the largest line item on your budget, particularly if you have a family. Consider ways to make savings, such as switching stores, taking advantage of sales, and buying produce that is in season.
- Stop eating out so much. Alright, I’ll admit that since I enjoy eating out, this is difficult for me. However, dining out is almost always more expensive than cooking at home—sometimes significantly more so. Just two or three extra home cooking sessions a week can add up to significant savings over time.
- Do an insurance coverage checkup. It’s possible that an independent insurance agent with access to several providers’ rates will be able to get you a better deal than you’re now paying for your coverage. Speaking with a RamseyTrusted professional can help you get that process started.
- Cancel some subscriptions. It’s very simple to sign up for more subscription services than you really use these days. Determine which streaming services you don’t need, cancel them, and use the money you save for your mortgage.
- Cut back on online shopping. I know, I know . With one-click ordering and two-day shipping, online stores like Amazon are incredibly convenient, but the total cost of all those orders can quickly mount up. Furthermore, if we’re truly honest with ourselves, we probably realize that not everything in our digital cart is necessary. (Gosh darn it!) Saving more money will allow you to pay off your mortgage more quickly each month.