For many of us, the biggest financial obligation we have is the mortgage. While some people don’t mind plugging away at the mortgage for 30 years (especially if the interest rate is low and they want to invest), others are interested in paying of the mortgage off as quickly as possible.
If you are in the camp that prefers to pay off the mortgage as quickly as possible, there are a few strategies you can use to get to the point where you can truly say that you own your home:
1. Get a 15-Year Mortgage Instead of a 30-Year Mortgage
The easiest way to pay off your mortgage faster is to start out with a shorter mortgage term. Instead of getting a 30-year mortgage, choose a 15-year mortgage. Even if you can’t quite swing the payment for a 15-year mortgage, you might be able to make a lot of progress with a 20-year mortgage.
In any case, if you want to start off on the path of paying off your mortgage at a rate that is faster than average. Just make sure that you can truly handle the monthly payments.
2. Get a 30-Year Mortgage, and Make 15-Year Mortgage Payments
If you are worried about getting caught in a bind with the 15-year mortgage, you can get a “regular” 30-year mortgage and then make payments as if it were a 15-year mortgage. You can always add the extra amount to the principal each month, reducing what you owe at a quicker pace.
This strategy is preferred by those who are concerned about what might have if the financial situation changes. If you get a 30-year mortgage, with its smaller monthly payment, but pay extra each month, you have a little breathing room in the event of a financial emergency.
3. Refinance to a Shorter-Term Mortgage Later
Perhaps you don’t feel as though you can handle the payments on a shorter-term mortgage right now, but think that you might be able to do it later. This can be one way to save money and pay off your mortgage at a faster rate. Refinancing to shorter-term mortgage — especially if the rate is lower — can help you get rid of your mortgage that much faster, while at the same time saving tens of thousands of dollars.
4. Keep Your Original Payment after Refinancing
Another option is to refinance your mortgage to a lower rate, and just refinancing for the same number of years you have left on your loan (or a little longer). Instead of paying the new, lower payment, though, keep making your original payment. You already know that you can afford that payment, so keep making it. More of your payment will go to principal, and you will accelerate your mortgage payoff. And you have the benefit of wiggle room if you run into financial problems.
5. Bi-Weekly Payments
You can squeeze in an extra payment each year without too much effort simply by switching to bi-weekly payments. You pay half your monthly mortgage payment every other week. This means that, some months, you make three payments. Because, with 52 weeks a year, you make 26 payments. If each month had four weeks exactly, there would be 48 weeks in the year, and you would make 24 payments. But, since that isn’t the case, two extra half-payments add up to an extra payment each year, and that can make a difference over time.
Image credit: Kevin McShane