If you dream of owning your home free and clear long before you hit retirement, you’ve got some work to do. While it’s not impossible to pay your mortgage off early, it does require some consistency and dedication. Below we help you learn several ways that you can pay your loan off early so that you can find the one option that suits you the best.
Make Bi-Weekly Payments
Many mortgage lenders allow you to make bi-weekly payments. This means that you pay half of your mortgage every two weeks. You’ll still make your regular monthly payments on time, but you’ll also make one extra mortgage payment per year.
If you pay your mortgage every two weeks, you’d make 26 half payments, which turns into 13 full payments. Without even realizing it, you make an extra mortgage payment! This can knock several years and thousands of dollars in interest off your loan.
Pay a Little Extra Each Month
If you don’t want to pay your mortgage every two weeks or your lender won’t allow it, consider paying just a little extra money every month. As long as you designate this extra money to go towards the loan’s principal, you’ll pay your loan off sooner.
There isn’t a minimum amount that you need to pay if you want to make extra payments. You can choose a specific amount or see how much extra money you can spare each month. The key is to be consistent about it. For example, if you decide that you can afford an extra $100 each month, make sure you pay it each month and apply it towards your principal. After one year, you’ll knock an extra $1,200 off your loan’s principal. While it’s not a ton, after 10 years, you’ll knock off $12,000 off the principal, which could save you money on interest and time that it takes to pay off the loan.
Pay 1/12th of Your Mortgage Each Month
If you want a little madness to how much extra money you send towards your mortgage every month, send 1/12th of the principal and interest payment on your loan. This will equate to one full mortgage payment each year. So again, you make 13 payments rather than 12 payments. In 12 years, you knock off a full year off your loan balance. After 24 extra payments, you knock 2 years off your loan.
Paying 1/12th of the mortgage might not seem as painful to you as making an extra mortgage payment every year. Let’s say your principal and interest is $1,000 each month. Adding 1/12th of the mortgage payment to that amount would be just $83.33. That’s probably less than what you spend on fast food and coffee stops each month.
Use Your Windfalls
Do you come into a large sum of money once a year? Maybe you get a tax refund or you get a bonus from work at a certain time each year. Since this is money that you weren’t expecting, why not put it towards your loan’s principal? You can knock the principal down faster and your wallet won’t feel a thing.
You can make this extra payment whenever you have the money. Even if it’s not time for a mortgage payment, you can send in the extra payment with a note that it’s to go towards your loan’s principal. Depending on the size of the windfall, it could knock several years off your loan, especially if you are consistent in your efforts.
Do What You Can
If none of these methods works for you, figure out what you can do. Even if you make sporadic extra payments towards your loan’s principal, you’ll knock time off your loan. Some people make extra payments during the time of year that their income is high and then back off during the slower times of the year. It’s all about what works for you.
Making extra payments towards your loan’s principal and interest is the best way to knock time of your loan. Many of these methods can be executed without you feeling too much of a pinch in your wallet. Figure out which method works the best for you and then stay consistent in your efforts in order to pay your loan off early.