How to pay off your mortgage early and save money
No one likes debt, but most of us wouldn’t be able to afford a home of our own without a mortgage. But what if we could free ourselves up from that debt in a shorter time? Here’s a look at some ways to pay off your mortgage early and save big money in the process.
Pay off your mortgage twice monthly
One way to pay off your mortgage early is to pay more towards the principal, which then reduces the amount of interest due in the future. You can accomplish this by making mortgage payments twice per month, instead of just once per month. Most of us receive pay checks every two weeks, so it’s an easy adjustment to make a half mortgage payment every time you get paid. With 52 weeks in the year, this adds up to 13 whole payments annually, rather than just 12.
However, many lenders won’t accept partial payments or may require you to enroll in a special bi-weekly mortgage payment plan, and there may be fees associated with such a program. Another option is signing up third-party service that will accept your bi-weekly payments and make your regular monthly payment for you, along with the additional annual payment. However, these services to pay off your mortgage early are not necessarily cost effective. It may take years to for the reduced interest costs to pay for the service fees.
Pay off your mortgage faster by adding to your monthly payment
If your lender won’t take partial payments, or you just prefer to make monthly payments like you do with the rest of your bills, you can simply add an additional amount equal to 1/12 of your regular payment to what you send in each month. This will reduce your principal and your total interest more quickly than paying your mortgage every two weeks, because the principal reduction occurs every month, not just at the end of the year.
If you can’t afford to pay an extra 1/12 (or about 8.5%) per month, even rounding up your payments slightly can result in significant savings. For example, an extra $100 per month paid against a $600,000 30-year mortgage will knock almost two full years and over $25,000 off the lifetime interest cost of the loan.
Important things to consider
- Always save for emergencies first. You can’t plan them, but you can prepare for them.
- Designate additional amounts paid towards the principal by making a note in the memo line of your check.
- Organizing extra payments yourself can save time, fees, and give you flexibility that a service or specialized mortgage program won’t.
- Using a separate account for your mortgage payment—or for all of your bills—means you’re less likely to spend that money elsewhere.
- You may be able to pay off your mortgage early and save even more by refinancing. Look into this with your mortgage lender.
Overall, the most important thing you can do with your mortgage is to make your regularly monthly payments in full and on time. But if you’re doing that consistently and have adequate emergency savings, paying a little extra towards your mortgage now can have a huge financial impact years down the road.
Are you looking to pay off your mortgage early and save money? Contact Torrance Mortgage Lender Shawn Carvin today to discuss which cost-saving strategies are right for you unique situation, including potentially refinancing your home. Shawn is a licensed California mortgage professional with nearly 30 years experience in the financial services industry, half of that focused on mortgage lending. Shawn works with clients throughout the greater Los Angeles area including Torrance, the Palos Verdes Peninsula, the Beach Cities, other South Bay communities, and beyond.