3 Simple Ways to Pay Off Your Mortgage Faster

Quick Answer

Homeowners can pay off their mortgage faster by employing strategies such as making lump-sum payments, opting for bi-weekly payments, or rounding up regular payments. These methods reduce the overall interest paid and shorten the amortization term. For instance, making accelerated bi-weekly payments on a $300,000 mortgage with a 3% interest rate could save approximately $16,000 in interest and cut the amortization schedule by almost 3 years. Truman Homes highlights these approaches as effective ways to maximize a home investment.

3 SIMPLE WAYS TO HELP PAY OFF YOUR MORTGAGE FASTER

Purchasing a home is not only a huge accomplishment and something to be very proud of, it’s also a great investment. Instead of paying your landlord’s mortgage every month, you can be putting this money towards your own mortgage while building equity. One way to get the best possible outcome of your investment is to pay off your mortgage as early as you possibly can. This way, the interest on the loan will decrease, and your amortization term will also decrease.

Below are 3 easy tips to paying off your mortgage sooner.

1. Make Lump-Sum Payments

Did you recently get a bonus a work or your tax refund back? Depending on the terms you agreed with your lender, it is common to have a mortgage that allows you to pay one lump-sum payment every year towards the principal of your mortgage. This lump-sum payment is normally allowed based on a fixed percentage of your mortgage. Example, some lenders allow as much as a 20% lump-sum payment towards the principal of your mortgage once a year (normally on the anniversary of your mortgage). Before doing this though, be aware that mortgage terms vary depending on the lender. If your lender does not allow lump-sum payments, you may end up paying a penalty. To learn more about making lump-sum payments, discuss this with your lender before obtaining your mortgage with them, or before making this kind of payment.

2. Make Bi-Weekly Payments

Most mortgage holders will allow you to make your mortgage payments bi-weekly instead of monthly. Because a normal calendar year is 52 weeks, making payments every 2 weeks will mean that you’d make 26 payments every year, therefore paying down more than if you only made 12 larger payments in a year.

This is because there would be two months that you’d make three mortgage payments in the month, allowing two extra bi-weekly payments to be made in the year.

For example, say you have a $300,000 mortgage with a 3% interest rate. On an accelerated bi-weekly payment schedule, you could save around $16,000 in interest and could cut your amortization schedule down by almost 3 years!

3. Round Up Your Payments

Rounding up your mortgage payments could shave years off your amortization schedule. For example, if your bi-weekly mortgage payments are $560, consider rounding up your payments to $600 (a difference of only $40). If you’re able to do this, your bank account will hardly notice the small additional amount, while shaving years off your amortization schedule.
Note: Make sure this additional amount is going towards your principal and not your next mortgage payment.

Frequently Asked Questions

1 How can making lump-sum payments help me pay off my mortgage faster?

Lump-sum payments allow you to contribute a larger amount directly to your mortgage principal, often once a year. This reduces the principal balance more quickly, leading to less interest paid over the life of the loan and a shorter amortization term. It's crucial to check your mortgage terms with your lender first to avoid penalties.

2 What is the advantage of making bi-weekly mortgage payments instead of monthly?

Switching to bi-weekly payments means you make 26 payments a year instead of 12 monthly payments. This effectively results in one extra monthly payment annually, as there are two months in a year where you'll make three bi-weekly payments. This accelerated schedule significantly reduces the total interest paid and can shorten your mortgage amortization by several years.

3 How does rounding up my mortgage payments contribute to paying it off sooner?

By consistently rounding up your regular mortgage payments, even by a small amount, you direct more money towards the principal with each payment. Over time, these small additional contributions accumulate, reducing the principal balance faster. This strategy can shave years off your amortization schedule and save you a considerable amount in interest.