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.