Tip #1: Refinance your mortgage. This is one that doesn’t automatically come to mind, for most people, but refinancing your mortgage into one with a shorter term is one of the best ways to get your mortgage paid off faster. Obviously just the act of taking a 30-year term down to a 15 or 20-year term will reduce the time you’ll be paying on your mortgage, but it actually works in two important ways.
Additionally, interest rates on mortgages that have terms less than 30 years are significantly lower. In general, the shorter the mortgage term, the lower the interest rate. This alone can save tens—or even hundreds—of thousands of dollars in interest over the life of the loan, depending on the total amount of the money borrowed.
This allows you to save tons of cash and pay your mortgage off faster—a win-win for most homeowners. If you’re also swimming in credit card debt, you may have the option to cash out a portion of your equity at the time you refinance so that you can pay off those credit cards too. While refinancing your mortgage into a shorter term loan may increase your monthly mortgage payment slightly, you may find that it can still easily fit into your budget. When you consider the long term savings, refinancing your loan to pay your mortgage off faster is a real no-brainer.
Tip #2: Set up a bi-weekly payment plan. Instead of paying your mortgage payment once per month, instead divide the total monthly payment into two and make it every other week. You won’t feel any difference from a financial standpoint, but this simple act can save you thousands—or even tens of thousands—of dollars in interest over the life of the loan.
You see, if you make bi-weekly payments instead of monthly payments, you’ll be making an entire extra monthly payment each year without feeling any difference at all. How? If you make 12 monthly payments, you’ll be making 12 full monthly payments each year. Do it bi-weekly and you’ll be making 26 half-payments—or 13 whole payments—each year.
While it doesn’t sound like much, making more frequent payments decreases the amount of interest you’ll pay because more of each payment will be applied to your principle balance. Over the life of the loan, that extra cash will not only save you big on interest, but it’ll also get your loan paid off faster.
Take note, though: you’ll want to contact your lender before you begin making bi-weekly payments.
Tip #3: Make an extra payment. As mentioned above in the bi-weekly payment plan, making an extra payment each year is a great way to pay your mortgage off faster. This simple act—just one extra payment—can also save you a ton on interest over the life of the loan.
Make your extra payment around tax time, if you get a refund, and you won’t feel the pinch whatsoever. Alternately, divide your monthly mortgage payment by 12 and make a small additional payment with that total each month when you pay your monthly mortgage payment (e.g. if your mortgage payment is $1,230, you’ll be looking at an extra $102.50 per month to equal one full extra mortgage payment per year).
Make sure that you specify that that extra payment goes toward your principle balance and not toward your accrued interest. This is a great way to pay your mortgage off faster without having to come up with a lot of extra cash all at once.
Make it happen.
Want to learn more about how to pay your mortgage off faster and save thousands or tens of thousands of dollars in interest over the life of your loan? Give one of NLC Loans’ personal mortgage advisors a call by calling 877-480-8050 toll-free or contact us online and we’ll be happy to give you all the information you need to get your mortgage paid off faster and lower the amount of interest you’ll pay.