Mortgages are the single biggest debt that most Americans will face over the course of their lifetime. On the one hand, they are seen as standard, normal, and even obligatory.
But on the other hand, you’re basically shouldering the burden of a debt equal to what you would make in 5, 10 or even 15 years. It's the cost of half a dozen big wedding days, several cars, and countless bills.
It’s a scary proposition, but once that debt is paid you will own your house outright. The quicker you pay it off, the sooner you can reap the benefits that come with owning 100% of your home. And that’s where these tips for paying off your mortgage come in.
8. Pay More
It’s an obvious solution, yet the majority of debtors just don’t do it. They would rather have a few extra hundred dollars in their pocket than the knowledge that they can save thousands over the course of their mortgage.
But the figures are hard to ignore. For example, if you have $250,000 left on a 25-year mortgage and you pay an extra $500 a month, you could save yourself over $65,000 and reduce the term of your mortgage to just 15 years.
This applies to any additional payments that you can make. An extra $50 a month in the above scenario will only reduce your term by just under 2 years, but it will also save you over $10,000. A good way of looking at it is that every additional payment you make will increase the value of all following payments by ensuring that a higher percentage goes towards the house and not the debt.
7. Pay Your Other Debts First
It may sound counterintuitive based on what we said above, but one of the easiest ways to pay off your mortgage is to clear your other debts first. A mortgage is a long-term debt with a relatively small interest rate. Credit cards and personal loans, on the other hand, are short-term debts with huge interest rates.
You may save more money in the long-term by focusing on your mortgage, but a credit card or personal loan debt will do much more damage in the short-term. The payments are typically harder to meet, the penalties are very severe, and if you do struggle and those debts are prolonged, they will be considerably more damaging than a mortgage.
Your first priority should be to pay off any loans or credit cards that have accrued penalties or have otherwise high APRs. The money you save by not paying interest on these debts can then be used to increase your mortgage repayments.
6. Pay Every Two Weeks
This may seem like a strange tip, but it’s an effective one nonetheless. There are 12 months in a year but 26 bi-weekly cycles. If you convert your monthly payments to bi-weekly payments, paying 50% each time, you’ll essentially be making one extra repayment every year.
Of course, this is no magic trick and you’ll still be paying more, but it’s a great option for debtors who crave order and structure and are looking to pay a little extra money every year. This is not something that lenders offer, so you need to take the time to deposit money into your account every two weeks and then give that money to the lender at the end of the month. If you do this throughout the year then you’ll have enough to make a double payment by the end of the year.
5.Pay Lump Sums
You don’t need to agree to additional monthly repayments just to clear more of your debt. You can also pay lump-sum amounts whenever you have the money to do so. Again, it can be difficult to find the willpower to give up a sizable sum of cash with the knowledge that you won’t see the benefits for years to come, but it’s just a case of adopting the right attitude.
You have to understand that a significant portion of every repayment you make is being used to pay interest, as opposed to the principle. But once that repayment has covered the interest then you can attack the principle and start actually paying for the house. So, if you get an unexpected windfall, consider using it to pay off your mortgage and you could save yourself a small fortune over the long haul.
4. Rent Out Your Home
If you have a spare bedroom, garage, basement or attic space that you’re not using then consider renting it out. Property is at a premium these days, and in many US cities you won’t need to wait long to find a willing tenant.
If you’re not comfortable with the idea of a tenant living in your home, then why not rent it out when you’re on vacation, visiting family, or on a business trip? Sites like Airbnb will connect you to willing tourists, and they have a reputation and review system that minimizes the risk. On a night-by-night basis you will make significantly more money with holiday lets, but long-term tenants provide more stability and security.
If you have had your mortgage for a few years and you’re not happy with it, your financial situation has changed, or you simply want a new approach, then it is time to refinance. You may be able to negotiate a better interest rate, especially if you are willing to pay some money upfront or agree to higher monthly repayments.
2. Spend Less
There are a number of ways that you can reduce your household expenditure, before using all of the money that you save to pay off more of your mortgage. We have discussed this in our guide to saving for rainy days, where we explained that over the course of a year the average American spends $500 on food they end up throwing away; $1,000 at coffeeshops; $3,000 eating out; and several hundred dollars on bottled water.
If you tighten your purse strings even just a little you’ll have more money in your pocket at the end of each month.
If you’re siting in your home right now, take a look around you. Of all the things you see, how many do you actually use and need? If you’re like the average American there will be piles of CDs and DVDs that are no longer listened to or watched; stacks of video games that were cast aside as soon as the next must-have title was released; hoards of clothing too big or small; old phones and computers.
What about the guitar you promised you’d learn but haven’t touched for years, the telescope/camera you bought before you lost interest, or the stack of textbooks from your last college course?
The average home contains an abundance of junk just begging to be sold. And with the advent of apps like Venmo, Cash4Books, Decluttr and LetGo, there’s no excuse not to sell-up.