Your mortgage is likely one of the largest bills you pay each month. Looking forward, it can be disheartening to think you have to make these payments for the next 30 years. What if there was a way to pay this large balance down faster? Would you be able to do it?
It sounds impossible when your mortgage payment is already likely over $1,000. But, there are simple and painless ways to get that balance paid down faster. Whether you have a lot of extra money to throw it at or you just get by, there are ways you can minimize how long you pay for this debt.
Make Bi-Weekly Mortgage Payments
Your mortgage is due once a month, usually on the 1stof the month. However, there are 52 weeks in the year, which adds up to a full extra month each year. If you were able to make payments for that illustrious 13th month, you would make one extra payment each year. This could knock several years off your principal balance and knock your interest paid down by thousands of dollars.
Here’s how it is done:
Every other week, save half of your mortgage payment. Let’s say your payment is $1,200. You would save $600 every two weeks. When you make the second deposit, you would pay your mortgage. In other words, you pay your mortgage every other week. Whether you actually send the money to the lender or you save it and pay once a month, it’s up to you and the agreement you have with your lender. The bottom line is that you make 13 monthly payments at the end of the year, helping to know your principal down.
Now, if your lender is fine with bi-weekly payments, you can go ahead and send the payment directly to them every other week. This way you know the money is there and you won’t risk spending it.
Pretend to Refinance (or Actually Refinance)
Did you know you don’t have to actually refinance in order to benefit from a shorter term? If you don’t want to pay the closing costs of a new loan, you can use a mortgage calculation to figure out the 15-year payment on your loan balance. You can then make those payments accordingly.
Just make sure that when you make the payments that you write a note to the lender regarding where the extra funds should go. The lender will use the funds as you direct, so telling them it’s an extra principal payment will directly knock your principal balance down.
Make Small Extra Monthly Payments
If you don’t have the ability to make extra-large payments, you can always just add a little more to your payment each month. There are few ways you can do it:
- Just add $50 or $100 to your payment each month; every little bit adds up
- Divide your principal and interest payment by 12 and make an extra 1/12th payment each month. This adds up to a full extra payment each year without emptying your pocketbook.
There’s no required way that you have to make extra payments. You do it how you see fit. If you make an extra $100 payment for a few months, but then can’t afford it one month, you are not obligated to do so. Just start back up again when you have the money to do so.
Invest Your Windfalls
Everyone is privy to windfalls at some point in their life. Think of things like tax returns, inheritance money, and bonuses. Each of these are funds you did not have before. Rather than relying on them to pay your regular bills or blowing them on a shopping spree, put them directly towards your loan balance. You can instantly knock your principal balance down, decreasing your loan’s term and the amount of interest you pay.
Each of these methods will help you pay your mortgage down quickly. In essence, as long as you make more than the minimum payment each month, you’ll hit that principal balance quicker. The lower your balance, the less interest you’ll pay over the life of the loan. Not only will you be loan free quicker, but also you’ll have a heavier pocketbook because of the lower amount of interest you paid in the end.