Congratulations! Are you at a point in your financial journey that you can whip this mortgage into shape and kick it to the curb? For many, this is an EPIC step in any financial journey.
Remember though that if you have any amount of consumer debts, little or no savings, and not even an emergency fund we highly recommend that you tackle and overcome these first. It is a smart and effective financial move to pay off your mortgage as soon as you are able, but in the right timing – otherwise it is not a commendable or financially responsible thing to do…just yet.
This is especially the case if you have debts. Pay those off (and some of these strategies will work for debt, but visit our debt category to really learn tricks and the value of hard-work and dedication to pay it off!) and then come back here and pay off that mortgage as fast as possible!
Let’s get to it!
Strategy #1 – Immediately implement a bi-weekly payment system.
Not only will it shave an average of 5-7 years off your 30-year mortgage, this simple step could save you an average of $50,000! And for most, they not only don’t notice the extra payment each year, but it can it actually be much better for balancing the monthly budget. Find out more in this post and implement the other strategies below and really wipe out this debt fast!
Strategy #2 – Round up your bi-weekly payments to the nearest $100 amount.
This easy calculation will very rapidly show it’s fruits in the form of your mortgage dropping quite quickly, especially when entering year #4 and onward with this strategy! For example, if your mortgage payment is $959 a month, A bi-weekly payment will be around $479. Round this payment to $500 and you will have an extra $500 each year going towards your mortgage principal, which will cut off an extra few years and several thousands in interest savings. Just make sure when you set this up that you ensure the additional amount will be applied to your principal.
Strategy #3 – Pay as much extra as you can, when you can.
If you get a bonus, make a little extra money, consider using some (or all!) of it for extra payments. It NEVER hurts to set aside extra money of any amount towards your mortgage. All it will do is reduce the loan time and the interest paid. Just make a habit of sending extra in when you can above and beyond the first two strategies. Again, ensure that any additional amount you pay will be applied to your principal.
Strategy #4 – Create a “self-induced” shorter term mortgage.
What we mean is pretend like your mortgage is a 15-year loan. You may just ask, “Why not just refinance for a 15-year loan?” That could be fine for some people, but we are not the biggest fans of doing this. The reason why? Well, if something happens to your living situation (e.g., job loss, a medical crisis), you can go back to making minimum monthly payments which will be far less on a 30-year than a 15-year. Yes, interest rates may be lower in most cases with the 15-year mortgage and refinancing may look attractive when you consider it, however, you lose a lot of wiggle-room. In addition, refinancing is not free. It costs money. And very often the cost of the refinance is tacked onto your balance. So, if you can create a “self-induced” refinance, then you will shave many years and thousands in interest.
Let’s play around with some numbers. The average American home mortgage is $225,000. We are going to make this super simple as an illustration, but use an online mortgage calculator to figure out what a 15-year loan payment would look like in your situation to figure how much “extra” you need to put in to equal that of a 15-year loan.
So, we started with a home loan of $225,000 at 30 years and 4.5% interest rate. The payment is $1,140.04. Now, using the same numbers, but reducing it to 15-years makes for a payment of $1,721.23 – a difference of $581.19. Can you add at least this amount to your mortgage? If you can, you will pay it off in 15 years!
Now, combine strategy #4 with the first three strategies mentioned in this article, and you will kick it to the curb and could be a true home-owner in 7 years or less and generate over $100,000 of interest savings!
These are some seriously smart strategies!
Have you implemented any of these? Or which of these (or all) do you plan to implement immediately? We’d love to hear!