How to pay off your mortgage early

How to pay off your mortgage early?

I’ll discuss 8 steps if applied properly you’ll pay off your mortgage early. By getting rid of your mortgage you will improve your financial situation.

If you want to pay down your mortgage early and save money here are the real ways to do it

1. Refinance

This is where you go to a bank and they will give you a brand new loan that replaces your previous loan

Now, this works best when interest rates go down where you can get a lower interest rate if you just get a brand new loan

This is something I’m in the process of doing right now to save some money

So here is my actual example:

I’m currently paying about 4.5% interest rate for a house loan and I actually thought this was a pretty decent rate at the time

There’s nothing wrong with that rate but interest rates went down recently and I had the opportunity to refinance that loan at a 3.875% fixed for 30 years.

That would save me about $220 dollars per month in interest on my mortgage

Now in order to do that, I will need to apply for a new mortgage at a new Bank and pay about $3,000 in fees

Then I can get a brand new mortgage for the exact same loan amount but this time I’m going to be paying about $220 per month less on my mortgage

So always look for lower interest rates and if you find a better deal just refinance your loan.

This is probably one of the best ways to cut back on your expenses and save some money

2. Use Bi-weekly payments to pay off your mortgage early

The second method to pay down a mortgage early is to make what’s called bi-weekly payments

The way your mortgage is calculated is by your total outstanding loan balance

So instead of making one payment per month, you can make half of that payment every other week

There are 52 weeks in a year so you’ll be able to make 26 bi-weekly mortgage payments every other week

Then if we just math a little bit more we all know that 26 half payments equal 13 full payments per year instead of doing 12 per year if you would pay monthly

And of course, that just cuts down your loan time substantially

As an example for $300,000 mortgage:

If you just make bi-weekly payments instead of making one payment per month you pay off your mortgage 4 years earlier and you would save about $33,000 in interest

That’s all for just making half of your payment every other week instead of just doing one payment monthly

So if your goal is to get rid of your mortgage as soon as possible and you don’t want to spend any extra money doing so then you should go this route

3. Make extra payments

The third way to pay off your mortgage early is by making extra payments towards your loan

So consider that with a mortgage you’re making 12 payments throughout the entire year every single month but if you ever get an end-of-the-year bonus or any sort of tax return and you throw it all into the mortgage that could cut down your mortgage Time by a lot

Just making two extra mortgage payments per year can cut down your mortgage time by 7 years

So if your goal is to pay off your mortgage early than just consider doing this: any time you get an unexpected windfall of cash like a tax refund or a bonus at work or any sudden promotion

Just plug it all back into the mortgage and pay it off early if that’s something that you want to do

4. Pay it off earlier

Finally, the best way to pay off your mortgage early is just to pay it off earlier

There’s no other way around it

I always recommend refinancing if you can get a lower rate to save the money

You can then make bi-weekly payments to speed up the process even further

But beyond that, you just got to pay it off using your own money

If your mortgage payment is $1,400 per month for 30 years and you decide to pay $2,000 per month instead you’ll pay off your mortgage 10 years sooner

If you up that to $2,200/MO and you’ll pay it off almost 13 years sooner and you’ll save about $100,000 in interest

5. Shop your loan around

If you want to know how you can get banks to give you better rates on your mortgage or if you’re going for a refinance, and this is something that banks will never tell you to do is just to shop your loan around.

What you’ll do is you go to one bank and get a rate quote then you take that to the second bank and ask them to beat it

Trust me they almost always will beat it

Then you take that new quote and take to a third bank and ask them to beat that one and they will

Then you continue doing that, shopping the loan around, each time having them to beat each other until you get the best deal possible and get the lowest interest rate

It’s kind of like negotiating a price on a used car because there’s plenty of a profit margin in these loans and the only way to get the rock-bottom interest rate pricing is just by doing this and shopping the loan around

The process usually takes a few days but trust me when I say this these are a few days that are very well spent and will save you a ton of money

6. Buy a house that you can afford

A house purchase is one of those emotional purchases where people tend to go over their budget which puts them in a difficult financial situation

If I was going through the mortgage pre-approval process and the bank told me that I could afford a property up to $250,000

In this case, I would set $150,000 as my budget instead of the $250,000 that the bank approved me for which puts me in a situation that allows me to put extra payments

So a lot of people will take that number from the bank and then set that as their budget but that’s not what you should do if your goal is to pay your mortgage early

You should set your own budget by reviewing your personal finances and thinking about how much you can spend on housing costs every month

7. Set a mortgage payoff date

If paying your mortgage quickly is your goal then set a payoff date and a plan to reach your goal by that date

Check your budget to see how quickly you could realistically pay off your mortgage

Now you have your normal mortgage payment but in order to pay off your mortgage rapidly you’re going to have to be throwing a lot more money at that principal

So look at the numbers and decide a payoff date depending on your financial situation

In addition to that long-term goal you also should set short-term goals along the way

Because those short-term goals help keep you motivated to continue this process.

8. Increasing income and reduce expenses

In addition to working your full-time job consider working let’s say 10 extra hours a week by doing various side hustles

Then take the money that you earn from those side hustles and put it towards the mortgage principal balance

Just take a really close look at how you’re spending your money and how you could earn more cashback or cut some expenses

Depending on your situation you can even cut the TV cable and reduce the amount that you eat out.

Thanks for your time

This was my approach to How to pay off your mortgage early? I hope you liked it and if you did then I recommend you to join my newsletter I post about money management and how to make money online.

Also, if you think this post might be helpful for others, feel free to share it.

You may also like

How much house can you afford? 3 Rules of thumb

Dave Ramsey’s Baby Steps to Financial Freedom

5 Signs you have a spending problem

Is your house an asset or a liability?

Renting is not a waste of money

How to pay off your mortgage early
Please follow and like us:
error

Enjoy this blog? Please spread the word :)