Paying off your mortgage early may sound impossible, but it doesn’t have to be. Imagine living mortgage-free and having extra cash to spend on travel or an early retirement. With a few adjustments, you can pay off your mortgage in half the time or less. Here are some tips and tricks to help you achieve your goal of living mortgage-free.
Add a Monthly Payment Each Year
One simple way to cut down your mortgage time is to add an extra monthly payment each year. Divide your monthly principal and interest by 12 and add that amount to your monthly payment. By the end of the year, you’ll have made 13 payments in 12 months. For example, doing this with a $200,000 mortgage will pay it off three years and three months earlier, saving you $18,000 in interest on a loan with a 4.5 percent interest rate.
If you’re five years into a 30-year mortgage with a fixed rate of 4.5 percent interest for a $200,000 loan, refinancing to a 15-year loan at 4 percent will pay off the mortgage ten years earlier and save you more than $60,000. Although your monthly principal and interest will increase from $1,013 to $1,345, you can still afford it with an extra $333 per month. However, only refinance if you can get a lower interest rate, as shorter-term mortgages often have lower interest rates. Otherwise, if you have the extra money each month to increase the payment, you can still pay off the loan in 15 years instead of 30 by making the extra payments. Just let your lender know that the extra money should go toward the principal.
Use a Windfall
If you’ve received a large financial windfall, putting it toward your mortgage can reduce the debt by a few years. For example, making an extra $10,000 lump-sum payment toward the principal balance on our mortgage sample above would pay off the mortgage two years and four months earlier, saving you $19,000 in interest.
Selling your home and downsizing to a smaller, less expensive home is another way to lower your mortgage debt. You can use the profits to buy a smaller home for all cash. At the very least, a smaller mortgage will allow you to pay it off quicker by making the same payments you did on your old house.
Qualifying for a Home Improvement Mortgage
Making improvements to your home can pay off in a few ways. Additions, upgrades, and general property improvements can increase the value of a home, and make it more comfortable to live in. Using your home loan as a home improvement mortgage to pay for repairs and improvements to a home can be an easy way to come up with the money without having to dig into your bank account.
Home equity loans and lines of credit are two of the most common ways to finance home improvement loans. They’re secured by the equity in your home, have low interest rates, and the interest you pay is usually tax-deductible. Home equity loans are a type of second mortgage, and they’re secondary to your primary mortgage. A usual home equity loan provides a sum of cash you can spend as you want to, and is a fixed-rate loan repaid over 10 to 20 years. A home equity line of credit, also called a HELOC, is a line of credit that can be drawn upon as you need it. HELOCs are typically adjustable-rate loans when you’re borrowing money but can be changed to fixed-rate when you pay them back.
To qualify for an equity loan, you need home equity, credit, and income. You’ll need 25 to 30