The mortgage is the largest debt most households will have in their lifetime, and paying it off as quickly as possible can save you a lot of money. These mortgage payoff strategies can reduce your interest payments and slash years off of the term of your loan.
Deacon suggests using a mortgage payoff calculator to determine when you can expect to be mortgage-free. And if you receive any windfalls—like a tax refund or performance bonus—putting that money toward your mortgage can shrink your debt even faster.
1. Set Up Automatic Payments
A common mortgage payment option is automatic payments, which allow you to have your payment automatically withdrawn from your bank account each month. This can help ensure that you pay your mortgage on time every month, which is important because late payments can lower your credit score and cause you to miss out on interest savings.
If you’re interested in setting up automatic payments, check with your mortgage lender to see if they offer this option and how easy it is to do. Some mortgage companies will provide a link on their website where you can set up your automatic payments, and others may have the option available through the paper bill section of their monthly statement.
Some lenders will also accept payments in person. If you prefer to do this, be sure to write your payment coupon from your mortgage statement on your check or money order so it can be properly credited to your account. You can also call the phone number on your monthly statement and use an automated system to make your payment. Some lenders charge a fee to use this service, while others don’t.
Another way to save on mortgage interest is to make biweekly payments instead of the standard monthly payments. This allows you to make one extra monthly payment each year, which can reduce the amount of time it takes to pay off your mortgage and significantly decreases the total cost of your loan. However, this method only makes sense if you have enough cash in your budget to cover an additional monthly payment each year, so be careful not to overspend.
2. Make Biweekly Payments
When you buy a home, you typically take out a mortgage loan. Most mortgages are repaid in 12 equal payments each year for the duration of the loan term. You may be able to save money and pay your mortgage faster by switching to biweekly payments.
By making half a payment each month, you reduce the amount of interest you pay on your mortgage loan each year. In the long run, you can significantly lower your total mortgage payments and pay off your loan sooner.
You can make biweekly payments yourself without signing up for a special mortgage acceleration program or paying a professional company to help you with the process. Simply check with your lender or send a letter to them letting them know that you’d like to send them two payments each month rather than just one. Most lenders will allow you to do this and will apply any extra money toward the principal balance on your mortgage. However, some lenders may not do this and might hang onto the extra money or put it into your escrow account. So, it’s essential to be crystal clear with your lender so that the process isn’t a waste of time.
If you can, try to set aside any windfalls such as tax refunds, bonuses, or monetary gifts and use them to pay down your mortgage instead of spending the money on something else. Even if it’s only $50 each month, it will make a big difference in how quickly you pay off your mortgage and can help you save on the interest that you’re paying.
It’s also a good idea to consider reducing your mortgage term so that you can pay off the loan faster. This will save you thousands in additional interest costs and get you out of the debt quicker. However, this option isn’t available for all homeowners, especially if your lender has a prepayment penalty clause that requires you to pay a fee if you pay off your loan early. Make sure to fully research any potential penalties before making a decision to shorten your loan term.
3. Make Extra Payments Each Year
If you have extra income each year, such as a tax refund or bonus, try to put it toward your mortgage. This will help shrink your debt faster and save you money in the long run. However, if you have other financial goals like building an emergency fund or investing in retirement savings, be sure to direct these windfalls toward those objectives instead.
Adding an extra payment each year can significantly shorten your loan term and save you thousands in interest charges. To do this, simply split your monthly mortgage payment in half and make it every other week. You’ll end up making 26 half payments a year, which is the equivalent of 13 full payments a year. This simple tip can cut your mortgage term by five years or more and save you a lot of money.
It’s important to note that paying extra on your mortgage is only a wise move if you have a solid emergency fund, are saving for retirement, have no high-interest debt and if you and your partner can comfortably live on less than half of your combined income. Alternatively, you could save money by cutting back on small, recurring expenses, such as dining out and canceling streaming subscriptions.