Just because you took out a 30 year mortgage doesn’t mean you have to make pay- ments for 30 years. Imagine making the same payment for three decades—doesn’t that sound exhausting?
Therefore, there are several ways to reduce your mortgage pay- ments and pay off your home faster. Here are a few of the very best ways to pay off that mortgage in less than 20 years.
Bi-Weekly Payments
One of the easiest ways to pay off your mortgage faster is to make bi-weekly payments instead of monthly payments. If you take your current mortgage payment and split it in half, you’ll have your half- month payment. If you make that half-month payment every other week, you’ll actually make 13 mort- gage payments every calendar year instead of 12. That one extra pay- ment each year can save you a substantial amount, depending on your interest rate and terms. If your lender won’t accept checks for par- tial payments, ask if you can set up automatic bi-weekly withdrawals.
Round Your Payment Up
Maybe you have a mortgage payment of $1,140 per month. Round that up to $1,200 and pay that amount every month. This will shave off a couple of years from your mortgage. While a couple of years may not seem like much, it could lead to a savings of more than $25,000 on a $300K mortgage with an average interest rate of 5%.
You can take this even further
by rounding up and paying bi-week- ly. So, instead of cutting the $1,140 in half ($570), you’d take the $1,200 and cut it in half ($600). Then, pay that amount bi-weekly and you’ll pay an extra $60 per month plus a 13th payment for the year, which will shave off even more years.
Use your Tax Refund
If you get a sizable tax refund, put it all towards your mortgage. Simply adding your refund to your regular payments, can make a huge difference in the overall amount you pay. Combine this with the other two methods and you might just own your home free and clear in 15 years.
Eliminate Private Mortgage Insurance
Private Mortgage Insurance (PMI) can eat up cash you could be using to pay off your mortgage. If you put less than 20% down on your home, you are likely paying for PMI every single month. This can be anywhere from 0.50% to 0.85% of your home’s value. It may not seem
like much, but over 30 years, it can add up to quite a bit.
If your home has gone up in value, or if you have paid off enough on your loan to get it to 80% of your home’s value or less, your lender may be willing to drop the PMI. If this happens and you continue to pay the same amount you’ve been paying, you will pay off the loan faster.
Cut Back on Unnecessary Expenses
Sometimes, you can use all the still feel like it’s not enough. If you can find a little extra money each month and add it to your mortgage payment, it’s worth it.
Remember, paying down the principle won’t reduce your monthly payment and it won’t allow you to skip a payment. However, it will shorten the overall time you pay those payments and will save you a lot of money.