We look at our homes as one of (if not our most) valuable asset. However, when there’s still a mortgage on the house, it means that the property is not exactly ours yet. Sure, you may have equity but at the end of the day, you are still a borrower, and the bank still has the rights to the property. This fact (and in the interest of saving…on interest) is precisely why many strive to pay their houses off ASAP. Do you dream of a debt-free life? Here are 4 secrets to paying off your mortgage sooner rather than later.
Look at Your Finances
A mortgage is considered good debt. Therefore, you don’t want to pay off your house and leave yourself struggling elsewhere. It’s sort of like the saying, “Cutting off your nose to spite your face.”
Don’t go into paying off your house blind. Give an honest look at your finances. If you don’t see yourself dipping into your retirement or emergency fund, then have at it. Otherwise, it’s not worth paying off your mortgage so quickly.
Pay More Toward the Principal
A little bit can go a long way in shaving off time until your house is entirely yours. Whenever you find yourself coming into extra money, throw it in your mortgage payment.
Every time you chip away at the principal, you are sandblasting the interest. That’s because you must pay a percentage of what you owe, not a percentage of your actual mortgage. So, even an extra dollar can save you some serious cents down the road.
Just make sure you allocate any extra payment. Most mortgage companies will take your payment and apply the minimum to the principal. The rest tends to end up in escrow. Sitting in escrow will not help you lower your principal or interest rate.
Pay the Mortgage Twice in One Year
If a little bit every month doesn’t seem to lend itself to your routine, try doubling your mortgage payment once a year. Treat it as a one-time payment like a car tax. Budget this one-time payment and make it the same time every year.
In fact, wait until your tax return. Tax returns are monies you don’t realize you’re missing out on. Therefore, invest that money into your future by putting this extra cash flow into your home.
Refinance for a Shorter Loan
The last few years have been hot for the refi market. Interest rates have been flirting with all-time lows. These desirable rates are the key to paying off your mortgage sooner.
While a refinance will help you cut down on interest, it will cause you to pay more on your principle. Typically, those who refinance will go from a 30-year loan to a 15-year loan. With a shorter loan, the interest rate will drop. So, you’re paying the house off faster and saving money in the long run, but you must pay more money upfront to get the savings.