How to Pay Off Your Mortgage Faster

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Paying for a new house can last a long time. You could start your mortgage payments on your wedding day and by the time baby goes to college, you could still be at it.

A $120,000 mortgage loan with an 8% interest will have cost you about $300,000 after 30 years and that is no small amount. It's no surprise then that people not only negotiate for the best and lowest interest rates, but also aim to finish paying their mortgages in the shortest time possible.

Here are some ways to pay off your mortgage loan faster.

Make bi-weekly payments.

If you have been looking for ways to pay off your mortgage faster, then you've probably heard of this one before. The problem is, most people think bi-weekly means twice a month. All this does is pay off the interest each month and hardly touch the principal.

To be effective, bi-weekly payments must result to a reduction of the principal by more than 1%. Otherwise, at the end of one year, you will still be stuck with a principal that is still 99% of the original loan. Your goal must be to reduce the principal and therefore reduce the rates.

Instead of paying twice a month, pay half of your mortgage every two weeks. At the end of 12 months, you would have paid 13 times instead of just twelve. One extra payment can easily shave off five and a half years from your loan term and help you pay your mortgage faster. Make sure also that you inform your mortgage company that the payment is intended for the reduction of the principal.

Double your payment.

If you can afford it, why not double your bi-weekly prepayment? Say you're paying $700 bi-weekly, pay $1,400 if you can spare the money. Again, remind the mortgage company that it should be applied to the principal.

Add a little extra.

If your monthly mortgage payment is $1,400 a month, adding just 1/12 to it will make a big difference later. Instead of paying that regular amount, pay $1,516. The extra $116 will help reduce your loan term by six years.

Making regular prepayments set at a percentage can also help. For example, paying an additional 10% a year with a $250,000 loan will come out to $25,000 a year. This would seem like a big amount, but again, if you have the means then you have all the ways to shorten your loan period.

Keep track of your payments.

Check with your mortgage company if they applied your payment against the principal. Then take note of your mortgage balance. If the company makes the mistake of taking your payment and applying it to your next, it wouldn't do anything in reducing the principal.
There are companies that offer a service to do the tracking for you and it may be more convenient, but this is really not necessary, as long as you can keep accurate records and be organized about your checkbook.

Do it now.

If you must begin gradually chipping away at your loan, now is the right time to do it. Postponing your plan of attack will keep you stuck with your old loan. So tell yourself to act now.

Set your goals and stick to them.

Start by making small goals that are easy to accomplish, then work your way to bigger goals. If you take this one step, doing the rest will be a lot easier than just shooting blind.

Save.

Unless you have wealth stashed somewhere, paying off a mortgage faster will demand that you have money to spare. For some of us, that might mean taking in a second job and clocking in more hours but you can squeeze out more wealth from that which you already have.

Spend less than you can afford. If you got along fine on a budget five years ago before that salary raise, then you can do it again. Postponing your reward may seem disappointing at first, but think of the savings that it will get you in return. Cutting your budget and getting rid of unnecessary expenses will mean more money for payment of your loan.

Be open to possibilities and don't be afraid to talk to your mortgage company to negotiate your terms. A little sacrifice can go a long way to help you pay off your mortgage faster, save you money and let you enjoy the big dividends in the future.

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