Become mortgage-free a whole lot faster with the help of these five easy tips:
1. Opt For Accelerated Payments
Depending on the terms and conditions outlined in your mortgage contract, you may be able to make accelerated payments. This option allows you to make weekly or biweekly payments, amounting to roughly the same total you’d expect monthly. However, by paying more than once a month, you’ll be able to save on interest charges and make approximately one extra mortgage payment per year.
2. Increase Your Payments
Of course, increasing how much you pay, even if it’s only by a small amount, is a surefire way to become mortgage-free faster. Here again, you’ll have to refer to your mortgage contract as you may only be able to boost your payments by a certain amount annually (otherwise, you may face prepayment penalties). Keep in mind, once you opt to up your payments, you won’t be able to lower them again until the end of your term.
3. Reduce Your Amortization Period
By reducing your amortization period to 20, 15, 10 or even five years (as opposed to the typical 25-year timeframe), you reduce the amount of interest you pay over the lifetime of your mortgage loan. While your monthly payments may be a little higher, you’ll pay down your principal faster and be loan-free much sooner.
Note: You can use a mortgage payoff calculator to determine how much you’d save as well as how much you’d need to pay monthly
4. Keep Payments the Same When Your Renew
On renewing your mortgage, you may be able to negotiate a lower interest rate, resulting in lower monthly payments overall. By choosing to keep your monthly payments the same (at the lower rate), however, you’ll be able to pay your mortgage off potentially years earlier. That being said, be sure to shop around for the best interest rates before re-signing with your current bank or lender.
5. Make Lump-Sum Payments
Take advantage of your prepayment privileges by making lump-sum payments. This approach allows you to make an additional payment (usually once a year) as a means of reducing your outstanding mortgage balance. While how much you’ll be able to contribute as a lump-sum payment will be outlined in your mortgage contract, the amount is usually limited to roughly 10 – 20% of the original mortgage total.
Bonus: Take Advantage of Windfalls
Utilize financial windfalls such as work bonuses, tax refunds, inheritances and monetary gifts to pay your mortgage off faster. Here too, if you get a raise at work, consider putting your extra earnings towards your loan – over the course of a year, this could amount to hundreds of dollars.
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