Imagine how wonderful it would feel to have no monthly house payment.
Purchasing a home is a dream for pretty much everyone. But, taking on that massive debt can prevent you from retiring earlier, or sending the kids to a better college, or taking that dream vacation. Like any other debt, if you’re able to get rid of your mortgage as soon as possible, the better off you’ll be down the road.
This may sound like an uphill task, but if you follow expert advice, you may be able to actually pay your mortgage off within a decade.
Make sure your home loan works for you
When it comes to choosing a home loan that suits your needs and works with your lifestyle and goals, look at more than just the interest rate. For example, a home loan that offers an offset account may come with a higher interest rate than a competing product, but could actually save you more money over time.
Make more frequent payments
Instead of making one monthly payment, you can make a half-sized payment every two weeks. In other words, if your usual mortgage payment is $1000 a month, you would instead pay $500 every other week. This will have the nearly the same impact on your budget as one monthly payment, but because there are 52 weeks in a year, a biweekly payment schedule will result in 13 full-sized payments a year instead of the normal 12.
Pay off the principal
Depending on your circumstances, you may want to steer clear of interest only loans. Choosing to only pay the interest on your loan for a set period of time will mean that once the interest only period expires, the required principal amount will need to be paid off at a higher propensity. Attacking both the principal and the interest is the best way to get your home loan paid off faster.
Re-finance to a shorter-term loan
If you have a 30-year loan, you can re-finance to a 10-15-year loan. While your monthly payments might be bigger than before, you’ll pay off the loan in a fraction of the time. Let’s say you got a 30-year fixed-rate mortgage for $200,000 at 4.5 percent. Five years later, you re-finance into a 15-year loan at 4 percent. This pays off the mortgage 10 years earlier and saves you more than $60,000.
Shorter-term loans tend to have lower interest rates than 30-year loans. Unless you can secure a loan lower than the old rate, you can skip re-financing.
Put your windfalls into your mortgage
Many taxpayers get a tax refund every year. If you use most, or all, of that money as an extra payment on your mortgage, you can make serious progress in getting your house paid off. Other potential windfalls include a bonus from work, a successful garage sale, or a gift from a relative. And if you get a raise, consider putting all the extra income into your mortgage. For example, let’s say your monthly take-home pay was $4,000 and your 3% raise means that you’re now getting $4,120 per month. Put the extra $120 into your mortgage every month and you won’t even miss the money, since you’re not used to having it.
There’s no point paying for things you don’t need, or overpaying for things you do, so find where you can make some cuts. You could use the extra cash to make additional payments on your home loan and help to secure a debt-free lifestyle much sooner.