Are you interested in learning how to pay off your mortgage early?
Have you ever dreamt of what life would be like without a mortgage? What would you do without your monthly mortgage payment?
Now that I’ve got you thinking, you are probably wondering how you can make this possible.
To get you even more excited, here are some of the benefits of a paid-off house:
- You will no longer have a mortgage! Okay, I know this is obvious, but it is a big deal. Considering that your home is usually your biggest budget expense, that’s a lot of money you won’t need to spend each month.
- You can free up cash flow to put towards other things. This means that you can have more money to put towards retirement, vacations, and so on.
- You’ll have more freedom because you won’t have a huge monthly payment hanging over your head.
If you are currently paying $1,000 each month towards your mortgage, getting rid of your mortgage payment means every year you could potentially max out your IRA, go on a vacation, and still put some money in savings.
Can you imagine how freeing that would be?
According to Yahoo Finance, 38% of owner-occupied households in the U.S. are paid off. And, mortgage-free living is more common for homeowners who make less than $25,000 a year.
Those two statistics actually really surprised me, and it’s not quite clear why that’s the case. But, the point is that you can learn how to pay off your mortgage early, and a surprising number of people have done it.
I know it seems impossible, and most of us grew up with the idea that a mortgage is something you always have. However, that’s not the case at all.
Learning how to pay off your mortgage faster is something you can do. Even shaving five years off your mortgage can save you thousands of dollars and give you five extra years without that big payment hanging over your head.
If you want to learn how to pay off your mortgage early, I have some great tips to share with you today.
Related content on how to pay off your mortgage early:
- How This 34 Year Old Owns 7 Rental Homes
- Pay off our mortgage or not? A glimpse into a couple’s final decision
- How We Paid Off Our $223,000 House By The Time We Were 30 (Yes, We Have Kids!)
- How I Paid Off My $400,000 Mortgage In 7.5 Years, Before I Was 32
- Can You Remove PMI From Your Mortgage?
How to pay off your mortgage early.
Before I go over how to pay off your mortgage early, I want to talk about some of the common questions that you may have.
Is there a downside to paying off a mortgage early?
While there are many positives of learning how to pay off your mortgage early, it is not something that everyone wants to do. There are many people out there who prefer to keep their mortgage, even if they could afford to pay it off in full.
Paying off your mortgage on a normal schedule (not early) can have advantages like:
- You can invest your extra cash elsewhere and earn a higher rate since today’s mortgage interest rates are so low.
- If you have a fixed rate loan, then a $1,000 payment today will still be a $1,000 payment 30 years from now. But because of inflation, in 30 years, $1,000 will be nowhere near the amount that it is worth today.
- By paying off your mortgage early, you may be tying up a lot of money in real estate, and some people want a more balanced approach.
And, prioritizing a fast mortgage payoff might not be the best option if you have high-interest rate loans (such as credit card debt), if you are not saving for retirement at all, have no emergency fund, and so on.
I recommend learning more at Pay Off Debt Or Save Money – Is One Better For You?
How fast can I pay off my mortgage?
You can pay off your mortgage as fast as you want if your bank allows it.
Some people decide to pay off their mortgage in just a few years, whereas others may keep their mortgage for the full 30 years. You may want to think about the pros and cons of paying off your mortgage to see what timeframe is best for you.
You can learn how to pay off your mortgage in 5 years, 10 years, 20 years and so on with the tips I’m about to share with you.
What happens if you make 1 extra mortgage payment a year?
Not everyone who wants to learn how to pay off your mortgage early is interested in doing it ASAP. And, there are others who don’t have the funds to do it in 5-10 years.
However, making just one extra mortgage payment a year can still help you save you money and time on your total mortgage.
If you have a $200,000 mortgage, for example, your monthly payment will be around $1,000. Making one extra payment of $1,000 a year will shorten your mortgage by just over 2 years and save you over $11,000.
Why does it take 30 years to pay off a $150,000 loan even though you pay $1,000 a month?
I’ve received a few variations of this question, so I wanted to include this here.
If you do the math, $1,000 a month over 30 years would be $360,000. This is much more than $150,000.
Why the discrepancy? It’s because you are paying a lot of money in interest, as well as other possible expenses such as property taxes and insurance.
By paying off your mortgage early, you can save thousands of dollars in interest expenses. You will still have to pay property taxes and insurance, but think about how much you would save each month on mortgage payments.
Will I have to pay a penalty to pay off my mortgage early?
One thing that you will want to check is if your bank charges a fee to pay off your loan early. This is less common nowadays, but it’s easy to figure out and can save you from penalties.
But, don’t let this scare you. Just simply ask!
How do I make an extra payment on my mortgage?
When paying any extra on your mortgage, make sure to tell your mortgage lender that you want the extra funds to go towards your mortgage’s principal balance. Paying down the principal balance is how you save time and money on your payoff.
This is a really important question to ask if you want to learn how to pay off your mortgage early because many banks will automatically put it towards your next month’s payment instead of the principal. That won’t help you save on interest expenses.
What happens if I pay an extra $200 a month on my mortgage?
It really depends on your interest rate, loan term, and principal balance. For example:
- If you are 1 year into a 30-year $300,000 mortgage with an interest rate of 3%, an extra $200 a month will save you $31,000 and shorten your pay off by 5.8 years.
- If you are 5 years into a 30-year $150,000 mortgage with an interest of 5%, an extra $200 a month will save you $36,000 and shorten your pay off by 8 years.
You can find a mortgage payoff calculator online to see exactly what will happen to your mortgage with an extra $200 payment each month.
What is the fastest way to pay off a mortgage?
If you want to learn how to pay off your mortgage early, there are many ways to do it. You can try one or many of the tips below.
Get a roommate.
We often had roommates when we owned a house. This was a way for us to save more money.
And, this can be a great way to put more money towards your mortgage.
Some homeowners will rent out multiple rooms in their home, basically covering their entire monthly mortgage payment.
Others may choose to only rent one bedroom and use that chunk of cash towards their mortgage payment.
You can learn more at What You Need To Know About Renting A Room In Your House. Here, I talk about:
- What does renting a room include?
- Is it legal to rent a room in your house?
- How much should you rent a room for?
- How can I find renters for my spare room?
- How can I make sure it’s a good fit with my future roommate?
Put your tax refunds towards your mortgage.
If you get a tax refund each year, then you may want to think about putting it towards your mortgage.
This can apply to any large amount of money that you come across, as it can put a nice little dent in your mortgage payoff progress.
Set aside a certain amount out of each paycheck.
If you have direct deposit set up on your paycheck, it will be very easy to set extra money aside each month to put towards your mortgage.
You may even decide to pay yourself first by setting aside money and paying your mortgage (and any extra mortgage payments) as your very first bill.
This is the first thing you do with each paycheck — you don’t even pay your other bills first. Try to think of savings (or debt) as the very first bill you have to pay each month.
Find ways to make extra money.
Finding ways to make extra money can help you learn how to pay off your mortgage early.
Several ways to make extra money to put towards your mortgage include:
- Seeking out a raise from your current employer – When was the last time you got a raise? You could put this extra money directly towards your mortgage.
- Working overtime at your current job – Working extra hours means that you can pay more on your mortgage.
- Getting a part-time job – A part-time job can allow you to put all of that extra money towards your mortgage and pay it off quicker.
- Creating a blog – I have a Free How To Start A Blog Course that you can join, and it will help you start and launch a successful blog. Blogging can be a great way to make a living from home with a flexible schedule.
- Joining a focus group – You can earn $50 to $100 per hour or more by joining a focus group and answering questions with User Interviews.
- Answering surveys online – Answering surveys online won’t make you rich, but it is one of the easiest ways to make extra money. Some survey companies that you can sign up for include American Consumer Opinion, Swagbucks, Survey Junkie, Branded Surveys, and Pinecone Research.
- Selling printables on Etsy – Creating printables on Etsy can be a great side hustle. Because you are creating online printables, you can create and sell them as much as you want without having to ship a thing. You can learn more at How I Make Money Selling Printables On Etsy.
- Becoming a bookkeeper – You don’t have to be an accountant or have any previous experience! You can read more about how to become a bookkeeper at Make Money At Home By Becoming A Bookkeeper.
- Selling items on Amazon – Yes, you can sell items on Amazon and make extra money. Learn more at How To Work From Home Selling On Amazon FBA.
- Flipping items for resale – Did you know that you can find items at yard sales, on the street, at thrift stores, and more, and sell them for a profit? You can find out more at How Melissa Made $40,000 In One Year Flipping Items.
- Renting your RV to others – Surprisingly, many RV owners don’t use their RV very often. If this is you, you may be able to rent it out when you’re not using it and make some extra money. Learn more at How To Make Extra Money By Renting Out Your RV.
And, that’s not all. There are many, many different ways to make extra money that you can put towards an early mortgage payoff.
Cut your bills to put more money towards your mortgage.
To pay off your mortgage early, you don’t have to lead a boring life, but there are probably some expenses that you can cut.
Here are some expenses you may be able to cut so that you have extra money to put towards your mortgage:
- Finding alternatives to spending money on cable TV. The average cable bill is over $100 a month, so this can be a big way to save around $1,000 a year. That may be one extra mortgage payment a year!
- Look for more affordable car insurance. Many people overpay for car insurance, when simply shopping around can help them save hundreds, if not thousands, of dollars a year. I recommend shopping around using this free service here.
- Switch to a cheaper cell phone plan. For example, Republic Wireless has plans that start at just $15 per month.
- Evaluate your subscription services and get rid of some. Do you subscribe to monthly boxes such as meal kits, beauty, pet treats, or something else? Analyze what is worthwhile to you.
- Go to the library more to save money on entertainment. Did you know that many libraries these days not only let you borrow books, but also hiking gear, parks passes, movies, and more?
- Buy more secondhand items.
And so much more.
Start by tracking all of the things you are spending money on, and then look to see which expenses you can cut or reduce.
Round up your mortgage payments.
Rounding up is an easy way to think about paying extra towards your mortgage, and even rounding up by a small amount can have a surprising effect on your long-term payoff.
Here’s an example: you have a $200,000 mortgage with an interest rate of 4.5%, and your monthly payments are currently $1,013.00.
Rounding up to $1,100 a month — an extra $87 per month — can shorten your loan by 4 years and 6 months. It can also save you nearly $30,000 on your total payoff!
Those numbers are if you have a brand new 30-year mortgage, but you get the point. If you want to learn how to pay off your mortgage early, a little extra money can make a big difference if you start early.
Make biweekly payments.
Because there are 52 weeks in a year, making biweekly mortgage payments means you are making 26 payments, and that equals one extra mortgage payment every year.
Earlier I explained how to pay off your mortgage early with one extra payment each year — it can save you a couple of years on your mortgage payoff.
However, check with your lender to see if they are set up to take biweekly payments. Some lenders charge a processing fee, and it might not be worth the savings.
Refinance your mortgage.
Mortgage interest rates are near historic lows right now, and you may be able to lower your monthly payment or get a shorter loan term if you refinance.
Now, before you refinance, you will want to see if the cost of refinancing is worth what you’ll be saving over time. It costs, on average, 2% to 3% of the loan amount to refinance.
Remember to stay motivated when paying off your mortgage fast.
Paying off your home early will be hard work, and it may also take you several years to do it.
This means that it may feel difficult at times to stay motivated.
Some ways to stay motivated when paying off your mortgage early includes:
- Create a graphic, vision board, or something else that demonstrates your financial goal.
- Reward yourself by practicing self care, spending time with family and friends, and doing things that make you happy.
- Think about how you will feel once you no longer have a mortgage.
Should you pay off your mortgage early? Is it smart to pay off your house early?
There are many things to think about when it comes to whether or not you should pay off your mortgage early.
For some people, it may be a no-brainer to eliminate their mortgage debt.
For others, they may want to invest their cash in other ways.
I recommend making a pros and cons list to see what is best for you.
Do you want to learn how to pay off your mortgage early? Why or why not? If you’ve paid off your mortgage early, what do you think is the most brilliant way to pay off your mortgage?
*Statistic from Yahoo Finance
The post How To Pay Off Your Mortgage Early – Everything You Need To Know appeared first on Making Sense Of Cents.