If you’re like most homeowners, nothing stings more than reviewing your mortgage statement and seeing the line item labeled “interest.” Even those lucky homeowners who locked in record-low rates will tell you, interest adds up over time. So if you are able to find ways to cut down the time it takes to repay your mortgage, you’ll pay less interest.
Think about all the things you can do with the extra cash… book a flight to somewhere you’ve always wanted to travel, buy yourself that car you’ve always wanted to drive, renovate you’re kitchen or bathroom — or just (be boring. but frugal!) and save up for a rainy day.
If you’re like most homeowners, you’ve fantasized about these hypotheticals in the past. Here are a few simple ways to pay off your mortgage early and make that fantasy a reality!
Make additional payments
Making additional payments (when your budget allows) gives you the opportunity to pay down your principal faster, which will save you a ton of money in interest charges.
Here’s a little known secret that most homeowners never find out. By making just one additional payment each year, you shorten the term of your loan by three years!
Make a lump-sum payment
Let’s be very clear, this option is not for everybody, however, if you’re lucky enough to earn a big bonus, receive a large tax refund, or inherit some cash, why not apply it to your mortgage?!
Unlike your typical mortgage payment, a lump-sum payment is applied directly to your outstanding principal. Lowering your principal can significantly reduce the total interest you’re paying for the remainder of the loan.
Refinance to a mortgage with a shorter payment term
You’ll face a larger monthly payment, but refinancing to a shorter-term mortgage will slash your interest costs and allow you to pay off your mortgage significantly quicker.
If you can handle a larger monthly payment, you can consider refinancing your existing mortgage, however, we would first recommend you attempt the first two steps. This way, you can still pay more each month without being forced to commit to a shorter-term loan.
The first two methods provide more financial flexibility — especially if you’re lending is going to charge significant fews to refinance your existing loan.