A mortgage is one of the most expensive debts ever, so trying to pay off mortgage faster is a smart financial move.
It would be ideal if you could just buy a house with cash. But saving up that kind of money can turn out to be quite complicated.
Few people are able to do it. Just imagine trying to save up money while also paying rent so you’d have a place to live in the meantime! The next best thing – as you can guess – is to take out a mortgage.
It is said that home is where the heart is.
While I’m sure many agree with this famous saying, if you’re a home owner who still hasn’t paid their mortgage debt, the truth is home is where your mortgage is!
That being said, the smartest move a home owner can do is find a way to get out of mortgage debt faster.
There are many options one can opt for, each with their own pros and cons.
Here are 3 of the most efficient ways to pay off your home early:
Refinance your mortgage
Best way to pay off mortgage?
Shorten your loan term and, at the same time, lower your interest rate. You’ll definitely kill two birds with one stone: you’ll pay your mortgage much faster and you’ll save up lots of money in the long run!
Pros: It makes sense if you think about it. Consider your interest rate on a 30-year mortgage, and compare it to a 15-year mortgage. Refinancing means you’d have to pay more each month but, if you think about the big picture, you’ll be out of debt years faster and you’ll definitely be grateful for the money you saved!
Cons: In order to refinance your mortgage, you have to make sure you qualify for it. You’ll have to go through a whole process involving gathering paperwork, explaining any income irregularities (including job gaps, if any), home appraisal and so on.
Add to your principal balance
Another quick way to pay off your mortgage early is to ‘throw’ more money at it from time to time.
Pros: Basically, by adding more money to your principal balance – even if only $20 a month – you will slowly but surely reduce your interest rate.
By doing so each month, you will most likely be able to pay off your house a few years early! So, next time you get a bonus, inherit some money or have some extra cash to spare, add it to your principal balance. It will help you a lot in the long run.
Cons: Off the top of my head, adding few bucks each month to your principal balance could mean less pocket money for you and your family. Or it could mean you’d have to give up pizza night or beer with friends every once in a while.
I’m sure limiting your budget will not be a problem though, if you plan on paying your mortgage faster! The ‘real’ problem here are penalties. So, before making any additional principal payments, make sure your lender does not charge any prepayment penalties.
Last but not least, let’s see how making biweekly payments will also help you pay off your house a lot faster.
Pros: If you make 1 payment each month, you’ll practically make 12 exact payments /year.
Now, instead of making 1 payment each month, you could switch to 1 half-payment every 2 weeks.
Simple maths tell us that, since there are 52 weeks in one year, at the end of December, you’ll end up making 13 whole payments, instead of only 12. So, this means 1 extra payment /year, which translates into paying your mortgage years faster!
Cons: In order to opt for biweekly payments, your lender might charge you a registration fee.
This is typically around $250-$300, and it will be charged once, but your lender could also charge a small fee for each half-payment you make. Before you make any decisions, make sure you have a talk with your mortgage company to know your rights and obligations.
Each of these methods has proven to be very helpful in case you plan on paying off your house early.
Of course, before applying any of them, you’ll have to make sure you have the necessary requirements (you’ll have to qualify for a refinance, you’ll have to make sure your mortgage doesn’t apply prepayment penalties, and so on).
Mortgage debt might sound scary, but once you figure out the best way to pay off your mortgage early, you’ll be one step closer to owning your dream house!
Have any of these methods worked for you? Do you know of any other ways to pay off a house faster?