Great Ways to Pay Off Your Mortgage Quickly

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Although some people are actually able to pay for new homes for sale in cash, for most homebuyers the most common way to afford one is by getting a mortgage loan. People generally take years to pay off the loan. While obviously a mortgage is a convenient way to buy a home you couldn’t pay with cash, the downside is that you end up paying interest for maybe up to 30 years. Those interest charges add up each month, so you may end up with a substantial interest payment by the time your loan term ends.

So it makes sense if you can pay off your mortgage early, just as it makes more sense to pay off the principal on your credit card debt. This means you may send off extra payments to reduce the debt balance more quickly. You should send the extra payment with a note clarifying that it’s to be applied towards your mortgage balance. The lender may mistake it as an advance payment

Of course, you will want to check what your lender’s policies are regarding extra payments. It may only be allowed at particular times, or there may be prepayment penalties if you try to quicken the pace of your mortgage payments.

But if it’s okay to make advance payments, here are some things you can easily do to shorten the time of your mortgage payment schedule. Let’s assume that you have a $220,000 mortgage for up to 30 years, and you’re charged a fixed interest rate of 4%. Now let’s see what you can do:

Stop drinking expensive coffee. Now you may think that your daily $3 cup of coffee from a gourmet coffee shop is no big deal. But instead you can add that $90 a month to your advance payments and your mortgage period is cut down by 4 years. You then end up saving $25,000 in interest payments.

Bring your lunch to the office. Brown-bagging your lunch may not be cool in some quarters, but then the real cool result is that you can save a lot of money because of it. Eating in your office instead of eating out can save you up to $100 a month, and if you use that to add to your mortgage payments then you save another $28,000. It also helps you to be free of your mortgage three years earlier.

Save just a little bit each month. A “little bit” here means less than $1 a day. Try setting aside $20 a month. If you add that to your mortgage payments, that’s $7,000 in interest savings and another year early too. And you won’t even feel the sacrifice of giving up less than a dollar a day.

Send an extra payment every quarter. So instead of making 3 payments per quarter, you can do 4. If you can swing this, it’s a huge acceleration of your mortgage schedule as you can shave off 11 years from the 30-year plan. Also, you end up saving more than $65,000 in interest. That’s the price of 2 cars!

Of course, it does help if you take stock of your financial situation early and before you take out a mortgage. You should have enough cash to cover 20% of the house’s cost as down payment, to cover all the closing costs and moving expenses, and to still have an emergency fund that can let you survive for 3 to 6 months (should you lose your current job). You need to get a house you can actually afford, or else you won’t be able to accelerate the mortgage period. You may even end up with a foreclosure instead!