When you first took out your mortgage you’ll have agreed to a mortgage term of (usually) 25 to 40 years. The longer the term, the longer it takes you to pay off your mortgage and the more interest accrues. Longer terms usually mean lower monthly payments but they also mean you’ll end up spending a lot more money before you own your home outright.
Paying off your mortgage more quickly is usually a good idea and can save you tens of thousands of dollars. However, not all mortgages allow you to pay off your mortgage more quickly than initially agreed. Some allow you to make overpayments but specify that they should only be 10% of the agreed standard payment. Others fine customers who pay off their mortgage before a specified date, meaning much of the benefit is lost.
Check with your mortgage provider as to the terms of your contract and then use online tools to help you calculate how much you stand to save if you are able to pay off your mortgage more quickly. The calculations are often pretty compelling.
But how to make it happen? Here are seven ideas for paying off your mortgage early:
1. Pay Extra
Paying extra each month or making one extra payment per year is likely to have a huge impact on your mortgage term.
2. Check Your Expenditure
If you don’t feel you have any extra money to dedicate to your mortgage, examine your outgoings carefully. You may be able to find a better deal on your energy costs. Or spend a little less on your TV subscription. This money can then go towards your mortgage. Whilst it may feel like a hardship in the short term, consider that you could be saving thousands more over the course of your mortgage.
3. Don’t Spend Your Pay Rise
We all tend to spend what we earn. Whilst you manage perfectly well to pay for the essentials on your salary, you get a pay rise and it all seems to disappear pretty easily. Avoid this inevitable trap by putting extra money from your pay rise straight into your mortgage on a monthly basis. As long as you haven’t experienced a big change to financial demands, you know you can afford it.
4. Round Up Your Payments
If your monthly payments are around $1853, consider rounding up your payment to $1860, or even £1900. A small increase like this could make a big difference over the term of the mortgage.
5. Generate Extra Income From Your Home
If a pay rise isn’t on the horizon, could you make a little extra cash from your home? If you have an extra room, take in a lodger or look for temporary guests on a couch surfing website. And if the garage or basement is sitting unused and empty, try renting it out as storage space on a site like Spacer.
6. Make Bi-Weekly Payments
Paying towards your mortgage every two weeks is beneficial because you end up paying more each year. Paying each month, you make 12 payments annually. Because there aren’t four weeks in a month, by paying bi-weekly you make the equivalent of 13 payments annually. There are additional advantages if your interest is calculated daily. Just be sure your mortgage lender is putting the amount you pay towards the principal, rather than keeping it in reserve until the end of the month.
If interest rates are compelling, you may benefit from remortgaging your home and even going with another lender. There are often costs involved in a remortgage so you need to be sure that the financial benefit of a lower interest rate covers these extras too.
Paying off your mortgage more quickly can often be more beneficial than putting your money into savings. If you have loans at a higher rate of interest, you should probably pay these off first but, otherwise, putting money into your mortgage is an intelligent way to save.