Your monthly mortgage payment – sometimes it feels like you will be paying it for the rest of your life. For most people, it is the largest debt they owe, and it is daunting, especially in those early years, when the interest paid is greater than the principal. It seems you are running an uphill battle. Is there any hope of shortening the race? Sure, there is! If you are willing to follow a few simple rules, you can hit the finish line a little faster.
Make a Plan
Start the pay-down process by taking a good, hard look at your finances. The mortgage payment probably takes a fair chunk of your change, so it might be painful to spend more money that way. This is where an honest look at your budget (and your wants versus your needs) comes into play. Where is all that hard-earned money going? How much extra can you really afford? Can you cut from one area and dedicate it to your mortgage instead?
Every little bit really does count, so $100 or even $50 per month redistributed to your house payment will make a significant difference in your pay-off date (and total amount). For a $250,000 loan with an interest rate of 4%, just $100 extra per month will lower your pay-off date by 4 years and save you thousands of dollars, as well.
In order for your plan to work, you will need to be disciplined. If you happen to earn a big bonus at work, take a percentage and put it straight down on the principal. If you are lucky enough to have an annual tax refund, stay strong and put it on the house instead of picking up that new 65” television. And that $100 you promised to your mortgage principal? It would take you and your sweetheart out for a delicious Valentine’s Day dinner, wouldn’t it? Stick to the plan, and you will be rewarded in the long run. Your Valentine would rather have a homecooked meal and a romance-themed Netflix binge anyways.
If self-discipline is not your forte, don’t worry. There is an easier way. Take the control out of your hands and set up an automated payment plan. This way of handling your mortgage often results in at least a minor interest decrease which also helps you pay down that balance faster. Most banks make it easy to change your automated transfers online, so you can adjust the additional principal amount as needed. Finally get that raise you’ve been waiting on? Great! Pat yourself on the back…then log in to your account and add another $50 to your mortgage payment each month.
Look at all of your options when working for early mortgage pay-off. Depending on your current interest rate, refinancing might be your best bet. If you obtain a lower rate than what you presently have, crunch the numbers to see if the decrease in interest outweighs the cost to refinance as it frequently will. If your current situation allows, you might also look at switching from a 30-year to a 15-year to obtain a lower interest rate and take a more aggressive approach to your pay-off.
This is so obvious that it frequently gets overlooked. If you want to pay your mortgage off early, don’t overextend yourself. It can be easy to get excited when hunting for a house, and before you know it, you’ve pushed your budget way beyond your means. Take a solid look at your finances before setting your max price, and then take it down a notch.
For example, if your top out number is $350,000, hold yourself to $310,000. The amount of interest and time to pay off the additional amount really adds up. Make sure you haven’t set yourself up for failure before you’ve even made that first payment. And remember, your first home doesn’t have to be your dream home. After you’ve paid it off, you are in a position to place a large down payment on the real house you’ve been picturing all these years.
Think Big Picture
It’s easy to get caught up in the here and now. I want to go on vacation. I need a new couch. I have to have the latest iPhone (because who doesn’t?). None of these things get you closer to your goal of becoming mortgage-free, though, and some of them actually push you farther away. That $1,000 phone upgrade could have gone to the principal on your home (and the iPhone 8 you’ve been rocking is still doing just fine). Quiet the noise and remember your priorities. Once your house is paid off, you will have more fun money than you know what to do with, so keep that in mind when those Jones’ start showing off all their new toys.
A mortgage is a big undertaking, and 30 years feels like a lifetime when you are just getting started. Relieve some of the pressure by utilizing one or all of the easy steps included above, and watch your debt go from an uphill climb to an enjoyable (yet disciplined) jog to that long-awaited finish line.