While mortgage rates are some of the lowest interest rate loans available, the truth is, they can cost you several hundred dollars each month in interest because of the large amount of a mortgage. The longer you take to pay off a mortgage, the more you will pay in total for your home, so the less you will get out of it in a sale. The faster you pay off a mortgage, however, the lower the total cost of your home will be. Therefore, it is in your best interest to pay down your mortgage as quickly as possible. Here are 5 ways to pay off your mortgage early.
Make Bi-Weekly Rather Than Monthly Payments
Making bi-weekly payments actually helps you in two ways. Every time you make a payment, the first thing that comes out is the interest amount that has built up since the last time you made a payment. When you make a payment every two weeks rather than every month, you give less time for interest to build up, so more of each payment is going towards the principal and not interest. That, in turn, decreases the amount of interest that is generated each month. Secondly, there are only 12 months in a year but 52 weeks. If you make monthly payments you will pay 12 payments per year. If you make bi-weekly payments, you will pay 26 half payments or 13 full payments.
Pay More Than The Minimum Payment
Once again, every time you make a payment, the first thing that comes out is the interest that has accrued since the last time you made a payment. Anything you pay over and above that amount goes directly towards your principal balance. Every dollar that you pay towards your principal is just that much less in interest that is generated each month, leaving more and more of your payment each month to be applied towards the principal. Even if all you do is pay $20 over your minimum payment each month, that can save you several hundred dollars in interest over the life of your loan.
Refinance At a Lower Interest Rate, But Keep Your Payments The Same
Once again, the name of the game is paying the least amount of interest possible over the course of a loan. When people refinance at a lower interest rate, however, their monthly payments will often go down. In most cases, this will not only extend the life of the loan, but can actually increase the total amount you will pay over time.
If you need to refinance because you cannot afford your mortgage, that is better than defaulting on your loan entirely. What is even better, however, is to refinance at a lower interest rate but keep your payments the same. That, in turn, will actually decrease the amount of payments you still have left to pay, which in turn will significantly reduce the amount of interest you will pay over the life of the loan.