Paying off your mortgage before its term is a tremendous way to save money over the long haul, relieve monthly financial burdens and even create equity and wealth. And once you learn how to pay off your mortgage early, you might find that it's much easier than you thought, and the payoff is well worth any short-term sacrifice.
The reason why it makes sense to pay off a mortgage early are numerous. But the biggest advantage is that doing so will limit the amount of financial interest that will accrue on your note. See, mortgage companies make their money on the interest, and depending on your mortgage interest rate you could actually end up paying three to four times (or more!) the cost of the original loan over the term of your mortgage. So the sooner you pay off the balance, the less money you'll be handing to the bank.
Not only that, but paying off your mortgage early will free up your money. Think about what your personal finances would look like if you didn't have a house payment any more? For most people, the mortgage payment is the biggest monthly expense on their books - imagine the freedom of not worrying about that anymore!
How To Pay Off Your Mortgage Early Without Driving Yourself Crazy
In theory, it's easy to pay down a mortgage note early: simply pay more than the minimum payment every month. Over time that extra money will add up to months - or even years - off your scheduled mortgage term. But there's a reason why I said "In theory." Most of us don't have the financial means to start throwing extra money at anything, let alone something that won't produce any tangible benefits until years - or decades - down the road.
In a perfect world, you could pay double or triple your monthly payments and finish your mortgage off within a few years. Too bad most of us don't live in a perfect world. Not to mention the fact that if you can afford triple house payments, there's a good chance you could have purchased your home outright and not even needed a mortgage to begin with.
And since most of us don't' have that kind of financial abilities, let's look at some easy ways to add even just a few dollars to your monthly payment. The following list of ideas starts small, then ends big, so there's something for almost anyone. And remember, every little bit helps. Any time you can even pay just a few dollars more than your monthly payment, it will reduce your mortgage principle, thus reducing the interest your bank will charge against that outstanding balance.
Oh, and before I get down to the nitty gritty, don't forget to run your numbers through a mortgage calculator. There are many free versions available on the internet, and they are an extremely handy tool for determining how your efforts will add up over the long haul.
The Little Things Can Add Up
It seems that many of us enjoy specialty coffee drinks on a regular basis. And in many cases, that "regular basis" means every day. Considering these drinks can surpass the $5 mark, imagine what cutting back here could do to your personal finances. If you simply drank fewer coffees, or ordered the next size down, then funneled that savings into your monthly house payment, you might find that it adds up really quick. By saving just one dollar per day (by ordering medium instead of large, for instance), that would end up putting $30 into your "house" every month, or $360 every year. And if you drank one less coffee per week on top of that, thus saving an additional $20 per month, that would add up to $600 per year.
I used the coffee idea only as an example. The same principle applies to any consistent "happy" expense you have. It could be eating a cheaper meal for lunch every day, renting DVDs instead of buying them or even parking in non-metered parking spots and walking.
Don't Splurge On Automobiles
Short of mortgages, car payments are probably the biggest expense most of us will face on a monthly basis. I won't get into specifics here, but imagine what you could do without this financial burden. To this end, I'd seriously recommend buying used vehicles at prices you can afford outright, or at least prices that you can finance with minimum impact. (As an example, three years of $150 monthly payments on a $5,000 car gives you much more financial flexibility than six years of $400 payments on a new car - and at the end of the day, you won't have lost your shirt in depreciation, either).
Personally, nothing beats a car that is both paid off and running well. When I pay off my cars, I find that the costs of keeping them maintained pales in comparison to going back on monthly payments.
Once your car is paid off, think twice about running to the dealer and buying the newest, shiniest model. The money you save by doing this can have a huge impact on your mortgage if you funnel the savings into your monthly payments.
Rent Out A Room
If you've got the space (i.e. a spare room), why not let someone else help pay down that mortgage for you? Adding a room mate can bring in some serious cash, and if managed properly, can really help pay off your mortgage early. Just remember to screen out potential room mates carefully, and make to cover your increased utility costs, either by charging your roomie a percentage of the total utility costs, or adding a "utility surcharge" to his/her monthly rent.
Also, be sure to keep track of all your expenses and income related to this, and to consult an accountant or tax professional, because there are some important tax regulations specific to renting out rooms.
Refinance Your Mortgage
It might sound counter intuitive to the purpose of this article to add another 30 years to your mortgage payments, but doing so can offer some huge cash-saving advantages.
For instance, if you can refinance to a much lower interest rate than what you currently have, you might end up saving hundreds of dollars per month. Now, imagine if you kept making your older payment amounts anyway? You'd have that mortgage paid down in no time flat.
The amount you benefit after a mortgage refinance is dependent on the difference between your existing mortgage and the one you're refinancing with. If you've got a horribly outdated home loan that can be modified extensively by lower interest rates and less fees of a newer one, why not check it out? Just be sure to ask about any closing fees and even early payoff fees before signing the bottom line.
To find out if you can benefit from a refi, talk to a refinance home mortgage specialist either online or in your local area.