Do you want to cash out your home? It turns out there are many ways to repay your mortgage faster!
This can often cut YEARS off your mortgage and save you thousands of dollars in interest.
So who wouldn’t want to save a bundle by paying it out much faster?
(Tip: Check with your lender before you start that there are no prepayment penalties. These penalties aren’t as common right now, but it’s still wise to check them out.)
When you have the idea of owning your home for free and on the clear, check out these 10 smart ways to get your mortgage paid back faster.
10 ways to pay off your mortgage faster
You can use as many of these methods as you want to make your home pay off faster. However, consider using at least one of these. Every little bit helps!
1. Pay a little more every month
This is probably the easiest way to do it. Send a little more each month when you make your normal mortgage payment.
How much extra? Whatever you like You can round up, choose a set additional amount that works for you each month, or change it.
(We initially sent an additional $ 35 per month. Here’s the full story about how we paid off our mortgage early.)
Talk to your lender about the best way to send in additional information. Some will allow you to sign in and get a payment, others may ask you to call and do so over the phone, and so on. You will likely have to make two payments: your regular amount and the extra.
Whatever you choose, the important part is making sure you tell them that the extra should only go to the client.
2. Make an additional payment each year
You can do this yourself by sending a full additional payment labeled “Capital Only” once a year. Call your lender again to find out how best to make this payment.
Or, if your lender offers a bi-weekly payment program, you can sign up for it. (It can also be called an accelerated payment program.) Then you automatically make one additional payment each year. Be aware of the fees that may apply if you join a lender-run program.
Bi-weekly payments are made when you make half of your monthly payment every two weeks. You pay half of it 26 times a year instead of the full amount 12 times a year. Twice a year you make an additional half mortgage payment only to the lender. This results in an additional payment per year.
Bi-weekly payments can be useful if you get paid every two weeks but your budget is monthly. People who get paid biweekly often think they get an extra paycheck twice a year. In this case it can be relatively easy to insert an additional half payment from the “additional” check.
More information on bi-weekly mortgage payments can be found here.
3. Make two additional mortgage payments each year
You can also speed things up by making 2 additional mortgage payments per year. For example, the typical mortgage payment for a $ 200,000 home would be $ 823 at 2.81% APR. (Excluding taxes and insurance.)
Let’s see what happens to these numbers in the first year alone. If you make just one additional payment of $ 823 to the financier this year, the mortgage will be reduced by 2 months.
However, if you only make two additional mortgage payments per year to the financier, it will cut four months in the first year. In two words, two additional mortgage payments per year can be speeded up significantly.
You can use this mortgage calculator or debt app if you want to mess around with extra payments.
Depending on your current interest rate, refinancing can be another great way to repay your mortgage faster. You can:
- Refinancing at a Lower Interest Rate
- shorter term refinancing
- or refinancing at both a lower interest rate and a shorter term
A shorter term refinance is the easiest way to get your mortgage back in 15 or 20 years. If your new payments are less than your old ones, you can revise them even further by continuing your old payment. (Direct the difference only to the client.)
If this is what you think this is what you want to do, let them know how much the refinance will cost you from different lenders. This way you can check whether it is worth it or not. Sometimes you can get a real free refinance, but that doesn’t happen very often.
If your current loan is a Home Affordable Refinance Program (HARP) loan from Fannie Mae or Freddie Mac, you may be able to use the high LTV refinance program to refinance.
5. Add your mortgage to the end of your debt snowball
If you use a debt snowball to pay off your consumer debt, put an end to this. Then you can just add your mortgage at the end. That’s pretty much what we did, and it REALLY made a difference.
Why? Because once you run out of consumer debt, you can make huge additional payments on your mortgage. And since you’re used to making these payments anyway, you won’t feel disadvantaged. If you’re like us, you’ll be delighted with your progress!
6. Move to a cheaper home or area
This will require some upheaval, but it may be worthwhile depending on your goals and situation. For example, you could downsize to a smaller, less expensive home. Or move to a cheaper home in a different area or state. Or both.
Your money can go much further in a new area. That could mean moving to the suburbs, a new neighborhood, a new city, or even a new state.
If you’re looking to move from a high cost of living area to a low cost of living area, the price difference can be huge. You may even be able to get a bigger house for less money and get out of debt sooner.
This can be especially good if you can move to full-time remote work at your current job.
7. Use Windfalls to expedite repayment
When you get a lucky break (such as a tax refund, bonus, gift, inheritance, or even that elusive lottery win) send it to the mortgage at a flat rate. This is one of the most painless ways to repay your mortgage faster. Make sure again that the flat rate only goes to the client.
8. Recast your mortgage
If you’ve made a large, lump sum payment to the lender, you may be able to rewrite your mortgage if your lender allows. (And if you don’t have an FHA, VA, or USDA backed loan.)
The flat rate typically needs to be at least $ 5,000, and there is usually a fee for this. Recast is usually cheaper than refinancing, but not always.
If you recast your mortgage, the loan will be amortized again. A new version lowers the monthly minimum payment, but maintains the same interest rate and the same term. This will reduce the total amount of interest that you will be paying.
This can be good if the interest rate on your loan is lower than the mortgage interest now.
When you do a rewrite, you can add another way to repay your mortgage faster. For example, let’s say your old mortgage payment was $ 1400 and after the recast it was $ 1200. You can only send the difference of $ 200 to the client each month. This will get rid of your mortgage even faster.
9. Gradually increase your additional payment amounts
Instead of just sending in a fixed additional amount, gradually increase your additional payment amounts over time.
For example, you can increase it by 1% every 3 months to match the size of salary increases, etc.
This is a beautiful, painless way of doing it.
10. Make repaying your mortgage your focus
If you wake up every day and think about how to pay off your mortgage faster, you will make more progress! Really making it a priority can be very helpful.
This usually includes things like:
- Work extra and send the money you make to it
- Reduce budget items and send difference
- Find a roommate and send their share to them
- Plus one or more of the ideas above
But don’t raid your emergency fund or your retirement to repay it faster. Emergency funds are for emergencies and pension funds are for retirement. Paying off your house is not one of them.
Advantages and disadvantages of getting your mortgage paid off faster
If you have read this far, you have probably already decided to repay your mortgage. But just in case, here are some of the pros and cons.
The main advantages of a faster withdrawal are:
- You spend less money on interest. Depending on what your loan looks like, it could save you tens of thousands of dollars.
- You do it sooner! That frees up money to do other things. (Save, invest, travel – whatever you want.
- Having a paid home is a huge relief during stressful times. It’s nice not to have to worry about a house payment if you lose your job, for example.
- The sooner you get your mortgage paid off, the sooner the weight of all that debt will lift off your shoulders.
And the cons:
- If you do get a mortgage interest tax deduction, you will lose it when you pay it off. But most people don’t. (See Why Holding Your Mortgage For Tax Withholding Is Often A Bad Idea.)
- If you have a very low interest rate, you may want to try and make more money investing than you spend on interest. But while you may do more this way, there are no guarantees. You could lose money too. You can also invest and use some of these ways to repay your mortgage faster. There’s no rule that says you can’t do both.
So what do you think If you are looking for quicker repayment of your mortgage, then choose from the options listed above to achieve it.
I recommend sending a little more to the client with the next payment. Then you can decide which of the approaches is best for you.