Home mortgages are usually considered “good debt” with low interest rates. However, that doesn’t mean you shouldn’t pay off your mortgage sooner than scheduled if you can. Whether you’re approaching retirement or just looking to enjoy a debt-free lifestyle, this article will cover all the ways you can pay off your mortgage loan faster.
Make Extra Payments Towards Your Mortgage
One of the simplest ways to pay off your mortgage faster is to pay more than the monthly payment. This could look like:
- Paying a little more each month as you can
- Rounding up to the nearest even dollar amount
- Switching to a bi-weekly payment schedule
- Make one extra payment each year
- Throw any extra money, such as a bonus from work or a tax refund, at your mortgage balance.
- Sometimes, you get a “refund” for having more money in your escrow account than was needed. Why not apply that amount toward your principal balance?
- Applying any other financial gains, such as an inheritance, toward your principal.
Adjust Your Budget to Pay off Your Mortgage Faster
If you have a target date in mind for paying off your mortgage, you may need to do more than throw a little extra at the principal balance when you can. A budget is a plan for your money, so you can adjust it to support your plan of paying off your mortgage faster. First, calculate how much extra you’ll need to pay each month to be finished with your mortgage by your target date. You can use our mortgage payoff calculator to help.
Then, make space in your budget for the extra mortgage payment amount.
- Look for opportunities to reduce spending in certain categories so you can reallocate that money to your mortgage.
- For example, are there recurring subscriptions you no longer use? Discretionary spending on dining out or entertainment you can reduce to meet your mortgage payoff goal?
- Just don’t stop saving for retirement and other goals.
- While it’s great to want to pay off your mortgage early, if it isn’t in your budget, don’t push yourself and don’t sacrifice too much. A home is a long-term investment; you can still enjoy vacations and the things you love while paying off your mortgage.
- If you’re paying off because you want to save on interest, consider refinancing your mortgage instead.
Refinancing to Pay off Your Mortgage Faster
Refinancing means replacing your current home loan with a new one. The reasons to refinance include:
Refinance to a lower interest rate but keep your loan term
- If rates have fallen since you bought your home
- If you can save on interest, you’ll be able to put more money towards the principal, without actually increasing your payment amount.
Refinance to a shorter term
This could increase your monthly payment, but it’s a good idea if your income or financial situation has improved since you bought your home.
This can be an option if you have other debt to pay off, such as student loans or credit card debt. Homeowners also use cash-out refinance to pay for major renovations. Pay off or consolidate your other debt so you can focus on paying off your mortgage faster.
Bring a large sum of cash to closing to lower your interest rate, term, or both.
Earn More On Your Deposit Accounts
Wondering how to pay off your mortgage faster without cutting spending? Earn more on your deposit accounts and use the interest earned to pay more on your mortgage each month.
- Invest in high-yield savings and cashback checking accounts.
- Consider a Certificate of Deposit; use the interest earned after the end of the term to put towards your mortgage. CS Bank offers monthly CD specials, so contact us to ask about our current special.
- If you can’t commit to a CD, consider a Money Market account or another type of high interest savings account.
- If you’re already using a debit card for your everyday expenses, consider a cashback checking account so you’ll get money back to put towards paying off your mortgage faster.
Should you pay off your mortgage faster?
When deciding whether to put extra cash towards your mortgage, consider whether or not the interest you could earn from investing the money is higher than what you will pay on mortgage interest. If so, you may be better off investing your extra cash instead of putting it toward your mortgage balance. Everyone dreams of being debt-free, but will your money work better for you in a savings or investment account than it would paying off your mortgage?
If you do decide to proceed with paying off your mortgage faster, check the terms of your loan to make sure there’s not a prepayment penalty.
We’re here for all your Home Loan Questions!
Are you looking for advice on how to pay off your mortgage faster? CS Home Mortgage is a full-service mortgage loan department. Contact us with your mortgage questions or schedule a consultation with one of our lenders in Northwest Arkansas and Southwest Missouri. We can help you figure out whether or not a mortgage refinance is right for you. Contact us with your questions about home loans in Arkansas and Missouri.