How to Pay Off Your Mortgage Faster (in as Quick as 5 Years)
While buying a home is a memorable first experience full of pride and excitement, getting to pay for that home over the next 20-30 years is something ..ahem… shall we say less memorable.
Let’s face it buying a home is a rite of pasasge.
It’s a given that for most people a house is the BIGGEST PURCHASE they will ever make. Which also means that it will be the LONGEST PAYMENTS they will ever have to make.
Let’s just come out and say it …”Home ownership rocks, but home payments suck.” Luckily there are things you can do to pay off your mortgage faster than the typical 30 years your bank would like you to believe.
The Scary Truth
The sad and scary truth is that a mortgage is the biggest reason why people are stuck in jobs they hate and can’t leave. Getting rid of that burden is something worth speeding up.
It’s about building Financial Freedom
We believe that getting rid of that dreaded monthly payment is a goal worth achieving. Outright owning a home is a huge step towards your financial freedom.
The truth is you are going to have to live somewhere, a paid off house is great place to stay.
Below are 5 tips we are using to pay off your mortgage quickly. By using all of these methods could pay off your mortgage in as little as 5 years instead of 25.
Related post: How We Paid off Our Mortgage In 6 Years
5 Things You Can Do To Pay Off Your Mortgage Faster
Switch to Bi-weekly Payments
This is the same as adding an extra months worth of payments every year. Instead of bi-monthly (24 payments a year), your mortgage is paid every two weeks, over the course of a year this adds up to 2 extra payments (or 26 payments per year).
There you go one extra month of payments.
This is another option most mortgages have. You can use any extra money as a one-time lump sum payment. Anytime you get a bonus or have extra cash it goes onto the principle.
Most banks allow for an anniversary payment of up to 15% of the original mortgage amount.
Call your bank and see what are the terms of your mortgage.
Related Post: Is a Lump Sum Payment Right For You?
Some mortgages over what is called a match-a-payment. Where you can pay double up on any mortgage payment you have. This is great as the whole amount goes against your principle and not against the interest. Doing a few of these every year can speed up your mortgage pay off.
Shorter Amortization Period
Huh? What’s with the fancy talk?
Amortization is a $20 dollar word that means the length of time you are taking to pay something off. Instead of making a payment over 25 years, you could shorten it to 20 years or less if possible. This has the added benefit of saving thousands in interest and being mortgage free years earlier than expected.
Making Mortgage Free a Priority
This is something everyone can do and it costs nothing! Having a debt free mentality will change how you look at everything. Yes you will have to sacrifice, and yes, sometimes it will flat out suck at times.
But it’s worth it.
Most things that are worth having take a little sacrifice. In my opinion that is what makes them worth having.
The One Thing That No One Wants You To See
When you start to look at how to pay off your mortgage faster the one key is putting more money down on your mortgage sooner than later. An easy way to do this is to change to a smaller amortization period.
If I had stayed with a 30 year amortization, I would have paid nearly the same amount of interest as my principle.
By changing my mortgage from a 30 year to a 25, I saved $61,000 over 25 years (on a $320,000 mortgage). All for an extra $70 every two weeks. Which is about the cost of a fancy coffee every day ($5 a day extra).
If you were to cut your amortization (length of the mortgage) to the following numbers, this is what savings you would have on a $320,000 mortgage with 5% interest rate.
|Amortization||Increase in bi-weekly payment||Interest Savings|
If an extra $5 a day saves over $60,000, $10 a day could save you over $100,0000.
What’s crazy is that it’s small changes that we can easily make.
Consider Refinancing Your Mortgage
We were originally in a 10 year mortgage because we were worried about rising interest rates. By switching to a shorter term mortgage it signalled to me that I was serious about paying off our mortage. We also saved a lot of money on interest by switching.
We cut down our interest rate and that helped with the mortgage pay down because every payment had less interest on it. If you are worried about rising interest rates refinancing might be the right thing to do. Sometimes knowing what you are going to be paying for years to come can be a godsend to your budget. I never regretted locking into a longer term mortgage and refinancing at that point made sense to us.
With rising interest rates and having those rates at all time lows, I would lock into rates for as long as I could.
If you’re in Canada Ratehub is a great place to get the most current rates.
Know Your Choices and Decide What You Will Focus On
While trying to do all of these may be down right hard, let alone impossible for many. It’s great to know what payment options you have with your mortgage.
The biggest lesson here is that EVERY LITTLE BIT COUNTS! A few years ago, we decided to focus on becoming mortgage free. Some people thought we were crazy, and outright told us that we should forget about it.
Fast forward to today and we have successfully paid off our mortgage.
Those people who thought we were crazy still have over 20 years of mortgage payments left.
I’ll be the first to admit, it’s definitely not for everyone, but I like the way it looks for us.
RELATED POST: 6 Mistakes We Made Paying Off Our Mortgage
Everyone’s situation, and mortgage, is different and you should always do what makes sense to you financially. For us, this is what made the most sense.
If you are looking for a great spreadsheet to crush your mortgage I invite you to sign up for our newsletter and I’ll send you it, plus some other free goodies too.
What are your thoughts? Should you focus on becoming mortgage free or should your money and attention go somewhere else?
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