1. Make a budget
Regardless of your income or your monthly expenditures, you need a budget. Every month, keep track of the amount of money you have coming in, and how much money is going to various expenses or other costs. Whether you keep it electronically or on paper, a budget will allow you to keep track of your priorities and give you a more accurate picture of your financial life.
Your mortgage is going to be one of the biggest and most important parts of that budget. Having a better picture of your overall finances will allow you to better see how that debt fits into your overall financial life — and how you can be better equipped to pay it down.
With a budget, you’ll be able to manage and control expenditures in other areas, and that’s extra money that can be put toward your mortgage.
2. Increase your payments
Probably the most direct and effective way to pay down your mortgage every month is to increase how much you’re paying. One of the easiest ways to do that is with biweekly mortgage payments. Biweekly payments (usually made on the 1st and 15th of every month) can reduce the amount of interest you pay over the life of your mortgage by thousands of dollars, ultimately letting you pay off your mortgage years sooner than you otherwise would. However, make sure that if you’re making biweekly payments, your bank isn’t charging you a fee to do so. If they are, those fees might negate the money you save via the accelerated payment schedule.
If you want to achieve a similar result on your own, add 1/12 of your mortgage payment to each monthly check. This will effectively give you thirteen payments a year instead of twelve, and you’ll pay down your debt that much faster.
3. Get rid of private mortgage insurance
Homebuyers who put down less than twenty percent of the value of their home as a down payment generally have to pay for mortgage insurance, which is designed to protect the lender in case of default. However, buyers who need to purchase this insurance don’t need to pay for it for the entire life of the mortgage.
Once you reach an , though keep in mind that you may have to pay for an appraisal. After you reach a 78 percent loan-to-value ratio, they’re required to remove it. Taking that insurance (which is for the lender, not you) out of your monthly payments can add up over time, and more of your monthly mortgage budget can go to what you actually owe.
4. Take advantage of refinancing
If you do it at the right time, refinancing your home loan could save you thousands (if not tens of thousands) of dollars. In recent years, that, during the past few years, homeowners have missed out on saving millions of dollars on their payments. If you don’t refinance when the time is right, you’re basically leaving money on the table. Right now rates might be rising, but it’s best to keep an eye on rates and save by either reducing the rates of your mortgage, lowering the rates, or both.
Refinancing can lead to lower monthly payments, but if you refinance to a lower rate but keep your payments the same, you’ll pay off your mortgage even faster.
5. Put bonds, CDs, and tax returns into your mortgage
Every so often you’ll come into some money. Bonds and CDs mature, or you may earn some inheritance or a tax refund. Upon receiving a windfall, your first impulse might be to spend it on a big purchase or invest it, but it could be potentially more lucrative to put it toward your mortgage. Depending on interest rates or other factors, you could make more money in the long run by using your windfalls to pay for your home.
6. Avoid prepayment penalties
Sometimes, even if you take measures to pay off your mortgage, you’ll still be hit with unexpected costs. Some homeowners pay down their homes more quickly than anticipated, but end up getting hit with prepayment penalties.
Prepayment penalties serve the interests of lenders. Faster payments mean they make less money off interest payments, so a prepayment penalty gives them a fee they can potentially collect instead. Mortgages with prepayment penalties are becoming less and less common, but they can sometimes have lower interest rates (which can be good). However, if your financial situation improves and you’re able to better pay down your mortgage, it might not be in your long-term interest as a borrower. Before getting a mortgage, think about your long-term payment strategy. If you ever want to speed up the process, a mortgage with a prepayment penalty probably isn’t for you.
If you have tips for paying down your mortgage, share them with us on Twitter or Facebook. And if this is getting you thinking about getting a mortgage and home of your own, get in touch with us today!