If you’re like most people, you probably dream of one day paying off your mortgage and being free from debt. But for many of us, that dream seems impossible. How can we afford to make extra payments when our budget is already so tight? The good news is that there are ways to pay off your mortgage quicker – you just need to know what they are.
In the points below, we’ll outline a few tried and tested techniques for paying off your mortgage faster. Not all of these tips will apply to your specific situation, but with any luck, you’ll find some use from the information included here.
1. Make extra payments when you can
Even if you can only afford to make an extra payment of $20 per week, that extra amount will go towards your principal balance and reduce the amount of interest you’ll pay over the life of your loan. Plus, making regular extra payments will get you into the habit of paying more than the minimum each month, which will come in handy when your mortgage is paid off and you’re trying to save for other financial goals.
If you receive a bonus at work or a tax refund, consider using that money to make a lump-sum payment towards your mortgage. Any extra money you can put towards your loan will help to reduce the amount of interest you’ll pay over time – use a home loan repayment calculator to determine the exact figures.
2. Pay your mortgage bi-weekly instead of monthly
By making bi-weekly payments instead of monthly payments, you can end up paying off your mortgage sooner and save money on interest. That’s because bi-weekly payments are equivalent to making one extra monthly payment each year, and that extra payment can go a long way in reducing the amount of interest you’ll pay over the life of your loan.
3. Refinance to a shorter-term mortgage
If you have a 30-year mortgage, you can save money on interest and pay off your loan sooner by refinancing to a 15- or 20-year mortgage. Of course, your monthly payments will be higher with a shorter-term loan, but the savings on interest can be significant. Just make sure that you’ll be able to afford the higher monthly payments before you refinance.
If you’re not sure whether refinancing is right for you, consider speaking to a financial advisor who can help you weigh the pros and cons of your options.
4. Take advantage of low interest rates
If interest rates have dropped since you originally got your mortgage, you may be able to save money by refinancing to a lower rate. This can also help you pay off your loan sooner if you extend the term of your loan when you refinance. Again, be sure to enlist the help of a qualified and experienced financial advisor in this process.
5. Make use of tax deductions and credits
If you itemise your deductions, you may be able to deduct the interest you pay on your mortgage from your taxes. This can save you a significant amount of money each year, which you can then put towards paying off your loan faster.
You may also be eligible for certain tax credits when you buy a home, such as the First-Time Homebuyer Credit. These credits can save you even more money each year, which you can put towards paying off your mortgage quicker.
6. Rent out a room in your house to help cover your mortgage costs
And finally, if you have the space and the inclination, consider renting out a room in your house. This can bring in some extra income each month to help cover your mortgage costs. Of course, it’s important to check with your mortgage lender first to make sure that this is allowed under the terms of your loan.
Paying off your mortgage sooner than expected may seem like a daunting task, but it’s definitely doable with a little bit of effort and planning. Use the tips above to help you come up with a plan to pay off your mortgage as quickly as possible.