What’s the largest debt hanging around your neck?
Even if you saved up a huge down payment, that loan from the bank still takes up the biggest percentage of your income, doesn’t it? Can you imagine how much money you could be investing if you could pay off the mortgage early? I’ve got great news! You can—if you’re willing to make some sacrifices.
How Do I Pay Off My Mortgage Early?
You’ve heard me tell you to get a 15-year fixed-rate mortgage, and there’s a good reason for that. I want you to start off on the right foot. But even if you didn’t, you can still get back on track and kick that mortgage debt to the curb! There are several ways to do that, depending on your financial situation.
Refinance the Mortgage
If you have a 30-year mortgage, you’re paying a fortune in interest. For example, let’s say you took out a $200,000 fixed-rate loan with 4% interest in 2014. By the time you pay off that loan in 2044, the total amount you paid would be about $343,800. That’s $143,800 in interest! If you took out a 15-year loan instead, you’d have higher monthly payments, but you’d only pay about $66,000 in interest.
Even if you keep your 30-year mortgage because of low interest rates or to save on closing costs, you can still pay on the mortgage as if you had a 15-year loan. Use an online mortgage calculator to give you a rough number to pay every month. Just make sure the extra is going toward principal, not interest.
Pay Extra Every Month
Some people can’t manage a 15-year mortgage, but that doesn’t mean you’re dead in the water. You can still pay more than what’s required every month. If you had that 30-year $200,000 loan, your monthly payments would be about $1,000. If you paid an extra $100 a month, you’d shave more than four years off your payments and save more than $26,000 in interest. At $200 extra a month, you’d save over $44,500 and more than eight years in payments. That’s nothing to sneeze at!
Pay Extra When You Can
I get it: Throwing a lot of extra money toward the mortgage every month might not be possible for everybody. But that’s not an excuse to coast for 30 years. You can pay extra on your mortgage whenever you can. Here are a few options to consider:
- Round up your payments every month to the nearest dollar, nearest $25, or more.
- When your salary grows, increase your mortgage payment to match the growth.
- When you get extra money, put it toward the mortgage (birthday, freelance, bonuses, yard sale, etc.).
The key here is staying focused and motivated. If you and your spouse stay on the same page and keep communicating about where you can pay extra, you can encourage each other to keep moving forward. You may not think that extra money would matter, but it all adds up. For example, if you could only come up with an extra $200 a year to pay on a 15-year loan, you’d still save over $1,000. I don’t know about you, but I’d rather have that $1,000 in my pocket than give it to a mortgage company!
Keep in mind that some companies will only accept extra payments at specific times (end of a quarter, end of the year), so don’t get hit with a prepayment penalty. And again, make sure any extra money goes toward the principal, not toward the next month’s payment.
I know, this seems like a drastic step. If you really want the freedom of a debt-free life, it might be worth the sacrifice. You can sell your home and use the profits to buy a smaller, less costly place to live. Then attack that smaller mortgage with all you’ve got!
One of the worst things you can do for your wealth-building future is to upsize your home and take on a more expensive mortgage in the process. Sure, you’d have a nicer house, but you’d have not-so-nice payments. And each time you upgrade, you have to start over paying off the mortgage. I know, people do this all the time—but I don’t want you to be like other people! I want you to be different. I want to you to win with your income and your financial goals.
Paying off the mortgage early is a reachable goal. It takes hard work and determination, but the reward is worth every sacrifice you make along the way. Before you know it, you’ll be sending out invitations to your mortgage-burning party!
If you need to talk with a realtor about your mortgage, let me recommend one of our Endorsed Local Providers in your area. They’re pros!