Paying down your mortgage is a huge accomplishment for you and your family, and it’s a very important aspect of your financial independence. Moreover, it’s quite easy to cut years or even decades off the payment schedule, increasing your equity and saving your money in interest payments.
Does that sound like an uphill battle that you can’t win? Follow these 4 expert tips to pay your mortgage off within a decade.
1. Make an extra payment
“Each time you pay extra on your mortgage, more of each payment after that is applied to your principal balance,” says best-selling author and radio host Dave Ramsey.
Before using this tip, let’s go over the ground rules.
- At first, check the mortgage company you work with. Some companies accept extra payments just at defined times or may charge you for that.
- Secondly, don’t forget to include a note on that you want your extra payment applied to the principal balance—not to the following month’s payment.
- Don’t waste your money on a fancy-schmancy mortgage accelerator program.
*Check out our mortgage calculator to estimate how quickly you can pay off your home.
2. Refinance into a shorter-term loan
Took a 20-year mortgage? Shorten it to a 12-year loan will blast you through that mortgage faster, and, will get you a better interest rate as well (short-term loans are typically paired with lower interest rates).
So, the payments on a 12-year loan are not double the payments of a 20-year loan; they’re significantly less. Check out mortgage rates to see how much you’d have to pay to do a 12-year refinance.
3. Downsize your home
Downsizing your house could be a pretty drastic decision, but if your goal is getting rid of your mortgage, consider selling your larger home and using the profits to buy a smaller, less expensive home.
Then, you can use the money from selling your bigger house on paying cash for your new home. Even if you have to take a small mortgage, you’ve succeeded in decreasing your debt. Now your goal is to pay off that debt as quickly as possible. The smaller the balance, the quicker you will make it happen.
4. Don’t Bite Off More Than You Can Chew
Be financially ready and know that you can afford the house you want to buy before you search for homes. Here is a simple checklist where you can start. Put your home purchase on hold, if you say no to any of these questions.
- Am I debt-free with three to six months of expenses in an emergency fund?
- Can I make at least a 10-15% down payment?
- Do I have enough cash to cover closing costs and moving expenses?
- Is the house payment 25% or less of my monthly take-home pay?
- Can I afford to take out a 15-year fixed-rate loan?
- Can I afford ongoing maintenance and utilities for this home?
If you need any assistance related to this question our experts are ready to provide you with more information.
If you take advantage of the following tips before you purchase your next home, you will be in a great position to pay that mortgage off early.