How to Pay Off Your Mortgage 10 Years Earlier — Simple Strategies That Work
The Holy Grail of homeowners is early mortgage payoff. Consider being rich at last, and stop paying those monthly bills. It can seem like an impossible task to pay off a mortgage in only 10 years. However, if you handle this sensibly and with some restraint, you can easily reduce your repayment time by several years. This will save you thousands of dollars in the long run.
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We are going to cut through the nonsense and provide you with simple strategies that anyone can use to pay off their mortgage faster in this article. Whether you are a first-time homebuyer or someone who has been paying your mortgage for years, these tips will help you be more in control of your mortgage and become set up financially.
Understand Your Mortgage Terms and Interest Impact
The first step to paying off your mortgage sooner is educating yourself about the terms of your loan. These often have fixed terms (say, 15 or 30 years) and a consistent interest rate, unlike credit cards. That interest is one of the reasons your loan ends up costing so much long-term. With a mortgage, the interest is front-loaded, so early on in your mortgage, most of your monthly payment goes to interest and not the principal (the actual loan amount). Which is why paying extra early saves you the most in interest costs. When you wait until much later in your loan, extra payments do more to reduce principal, but the interest savings aren’t as great.
It also pays to understand how amortization works — the schedule that breaks down your payments each month between principal and interest. Most online mortgage calculators can calculate this for you. In addition, you should note that even though the majority of U.S. mortgages do not have prepayment penalties, if yours does, this may impact your decision to refinance your loan. If you understand how your loan is built, it will jump out at you why making additional payments at certain times can save thousands in interest and cut years off the life of your mortgage.
Make Extra Payments Without Stressing Your Budget
Even adding just a little more to your mortgage payment can save a few years on your loan. By adding just $100 a month to a $250,000 30-year mortgage, for instance, you could save thousands in interest and shave years from the life of the loan. But that does not mean overcommitting yourself. Find small ways to save a few extra bucks — like cancelling those subscriptions you never use, doing more meal prep at home, or taking on side jobs.
Either way — with loans or credit cards — if you apply extra payments in the name of a future payment only, you are not reducing the principal and therefore future interest. It reduces your loan balance more quickly, meaning that it will help you pay off your loan faster. Consistency is key. Second, it helps even if you can only do it a couple of times per year. If possible, program it so that you do not miss out.
While it may seem like you are chipping away at your loan slowly, increment upon increment, over time these little & incremental amounts compound and shorten your loan term or interest. Naturally, it should always be done in a manner where you are able to make these payments without critically affecting your day-to-day routine or emergency funds.
Refinance Smartly to Lower Interest and Term
One option to consider in making your mortgage disappear more quickly is refinancing, but it won’t work for everyone. And by refinancing, we mean exchanging your current loan with a new one that typically contains lower interest rates or a term of years. Lower interest means you pay less over time, and less time borrowed means a shorter term. A 15-year mortgage and a standard 30-year, for instance, can make a huge difference in how long you are repaying that debt.
However, refinancing does cost money-application fees, appraisal, closing costs-so you will need to do some math on whether your savings are worth it. Compare total cost using online refinance calculators. Second, if you plan to live in your home for a while, then it probably does make sense to refinance because you will stay in the house long enough to get back those fees. So just remember this when shopping for a refinancing:
- Compare rates from several lenders
- Zero or low closing costs
- Read everything you must sign
- Determine a program or interest rate and do the break-even numbers to see if it will save you money over the long term by refinancing
- To get the highest possible rate, check your credit score
Done right, refinancing can be a powerful tool to own your home faster and save thousands.
