Tips to pay off a Mortgage Faster
Paying off a mortgage loan can feel burdensome. The debt looms over one’s life and can cast a shadow over their dream of retiring early or traveling the world. Paying off the entire debt at once is rather unlikely, but if an appropriate strategy is in place, it is possible to clear the debt years in advance. Let’s take a look at some tips to pay off a mortgage efficiently:
1. Expenditure Control
Saving a little bit on a daily and weekly basis might not seem like much at first. But as the months go by, these small savings add up and can help one pay off their mortgage years earlier. Let’s take the example of a 30-year mortgage loan for $250,000 at a 3.5% annual rate of interest. Paying an extra $100 every month could help save $23,000 in interest and pay off the mortgage in 26 years. However, when attempting this option, it’s crucial to inform the lender that the additional payment is for the loan principal and not the interest.
To control the expenditure, a key area would be credit card expenditure. Credit card expenses tend to be impulsive and curbing this is essential. Another tip would be for people to grow their food rather than depending entirely on the grocery market. Becoming self-sufficient, even if it’s only for a few items, helps to save plenty of money in the long-run and can assist in shaving off years from the loan.
2. Tax Refund
The quickest way to pay off one’s mortgage is to make additional payments consistently, but doing this can prove to be difficult for some. A simple strategy to employ would be to use the tax refund and make a jumbo mortgage payment for the year.
According to the Internal Revenue Service, the average tax refund in 2019 was nearly $3,000. Making a $3,000 mortgage payment is like paying an extra $250 every month towards the loan, and doing this can drastically reduce the number of years the loan is paid for.
3. Refinance the Loan
Refinancing a long-term loan into a short-term loan can help one pay off their mortgage faster. Since short-term loans generally have lower rates of interest, one would be able to save money on interest payments. The shorter time period also contributes to paying less towards the interest.
This means that the payments one would make on a 15-year loan are not twice the payments that they’d make on a 30-year loan. Using a mortgage payment calculator can help one understand what they would need to pay off a 15-year loan that is refinanced. In case the monthly payments for such a loan are too high, one could increase the time frame marginally and check again from a feasibility perspective.
There’s no single perfect way to pay off one’s mortgage. Exploring all available options and using a combination of the above methods can help one find a way that works best for them. It’s vital to keep in mind that implementing small and simple procedures can help reap rewards in the long run.