Buying a home is a big step that can benefit you in many arenas. But when the mortgage payment comes due each month, it might temper your euphoria of being a homeowner.
Your monthly payment on your house is likely one of the largest line items in your budget — and the sooner you eliminate it, the sooner you can redirect that spending. If you pay off your mortgage early, you might experience true financial freedom. Although there’s no magic way to end the mortgage payoff process overnight, you can use these six tips to pay off your mortgage early.
1. Make Biweekly Payments
If you receive biweekly pay, you can easily make payments on your mortgage every two weeks instead of once a month — just pay half the amount every two weeks. By paying biweekly, you end up making one additional payment each year because there are 52 weeks per year.
Instead of making 12 monthly payments, you make 26 bimonthly payments — the equivalent of 13 monthly payments. The extra payment goes directly to your principal, which helps more than you might think when it comes to paying off a mortgage early.
2. Increase Your Monthly Payment
If you don’t want to change your mortgage payment schedule, consider adding an additional amount to each monthly payment. Whatever additional amount you send will reduce the principal balance, which reduces the amount of interest that accrues.
If you go this route and find that you can’t swing paying an extra amount one month, just make your regular payment. Although this is a great way to pay down your principal, you must have the self-discipline to actually make those bigger payments.
3. Refinance Your Mortgage
Check to see if mortgage interest rates fell since you took out your loan — if they have, you can likely refinance to a lower rate. Even if rates haven’t fallen, you might still qualify for a lower rate if your credit score has improved since you bought your home.
For example, if you had fair credit when you bought your home but you’ve been paying your mortgage and credit cards on time every month since then, you might have improved your credit score. And a higher credit score can likely qualify you for a lower interest rate.
If you’re thinking about a mortgage refinance, consider refinancing to a shorter term if you can afford the higher monthly payments. For example, if you’re five years into a 30-year mortgage, you might want to refinance to a 15-year term. Because 15-year rates are typically lower than 30-year rates, you’ll save a large amount of interest and pay the loan off sooner.
4. Use Your Tax Refund
The secret of how to pay off your mortgage early could be hidden in your income tax return. The average taxpayer received a refund of $3,120 in 2015, according to the IRS. If you receive a tax refund and use it to pay down your mortgage, you can make a major dent in your principal. And you’ll be using money you weren’t counting on, too.
5. Cut Other Costs
If you want to pay more on your mortgage but can’t afford to, try cutting your spending and putting that money toward your mortgage. Make sure you cut out extra expenses like memberships or subscriptions you don’t use.
To help you stick to your plan, tell your family and friends about your goal. They can check in on you and help you avoid situations in which you’re likely to abandon your spending resolution.
6. Earn Extra Income
If you’re really serious about paying off your mortgage early, pick up a side job and send that money to your loan servicer every month. You can take on extra shifts, pick up a gig on your days off or even start your own side business. Pay off the mortgage early and you’ll have more money to spend on whatever you like.