While it’s every homeowner’s dream to be able to pay off their mortgage long before its term, the truth is that not everyone can realistically afford to do that. Before you decide whether paying off your mortgage faster should be your priority, consider your current situation.
For example, if you have debts with higher interest rates than your mortgage, you should focus on paying off those as soon as possible. If you have other important financial goals, such as starting a family or starting a business, it could make more sense for you to prioritize these goals.
That said, paying off your mortgage as soon as possible has benefits. It reduces the interest you have to pay, increases your monthly cash flow, and gives you an incredible sense of freedom and pride. For all these benefits to be yours, you need a strategy and, ideally, some extra cash in your budget.
Here are the best strategies for paying off mortgages.
Make Additional Mortgage Payments Whenever You Can
If the terms of your mortgage make it possible for you to make additional mortgage payments, take advantage of this whenever you get extra cash.
Did you get a tax refund or a big return on one of your investments? Or you just sold the second car in your household, and now you have a nice sum you’d like to use to pay off your mortgage. Check with your lender to see if you could use this money to make additional payments. Let them know you want these payments to reduce your principal balance.
Refinance Your Mortgage At A Lower Interest Rate
Some of the best strategies for paying off mortgages can be applied when renewing your mortgage. Refinancing your mortgage allows you to pay off your current mortgage with a new one, which should have a lower interest rate.
Don’t hesitate to ask a mortgage agent to help determine the best way to refinance your mortgage. If it would not be possible for you to refinance your mortgage with a lower interest rate, your mortgage broker will help you find a different strategy.
Increase Your Payment Amounts
If you got a raise or found a way to increase your monthly income, you could use your extra cash to increase the money you pay on your mortgage each month.
Higher payment amounts will reduce your principal, even if it’s just a few hundred dollars each month. This means you’ll pay less interest and be done paying your mortgage sooner. Review your mortgage contract to know how much you can increase your payments. Stay within this amount because if you do, you could be charged a penalty.
Schedule Biweekly Or Weekly Mortgage Payments
If you make one mortgage payment each month, but you could regularly be able to make additional payments, consider changing your payment schedule.
By opting for biweekly payments instead of monthly ones, you would make 26 mortgage payments a year. Just ensure your lender only charges you additional fees for making your payments on a biweekly schedule, as your goal is not to find a way to pay them more. You could switch to a weekly mortgage payment schedule if you feel it would fit your budget.
Consider Making A Lump Sum Payment
Making an annual lump sum payment is a good strategy for paying off your mortgage faster. And since this lump sum will reduce your principal, it will reduce the amount you owe and the interest you will pay.
Whether it’s a tax refund, a lottery win, a bonus, or an inheritance, any windfall you receive can be used to make a lump sum payment on your mortgage. Check with your lender to see how much extra money you can pay off this way. You don’t want to be penalized because your annual lump sum payment is too high.
Reduce Your Amortization Period
Finally, you should consider your mortgage’s amortization period. Your amortization period is the number of years it will take you to pay off your mortgage completely.
As you renew your mortgage, consider reducing your amortization period. This might mean higher monthly payments, but if you can afford them, you can pay off your mortgage much faster than originally planned. You can then focus on your other financial goals or enjoy owning your home outright.
