We all want to be debt free! You can use any or all of these 5 tips to pay off your mortgage early and faster than the normal 30 years.
These are tips and tricks that my husband and I are doing to cut 10 years off the life of our loan and save over $47,000 in interest!
We recently sold our very first home that we bought 10 years ago to get something bigger for our growing family. These are all the things I wish I knew before buying my first house.
We purchased the home for $116,000 and sold it in 2019 for $195,00!
That gave us a good starting point for our new loan since we were able to put down a nice down payment.
If you are a first time home buyer or you are on your third or fourth home, anyone can use these tips to pay off your mortgage early.
Before you Buy a Home
I just wanted to mention a few things to keep in mind if you are in the process of looking to purchase a new home. These tips will help you live within your means and not have to live paycheck to paycheck:
- Try to purchase a home you could afford on one income. You never know what the future will hold (death, divorce, job loss) and you want to make sure you can keep making payments if you were to lose one of those incomes.
- Don’t buy a home until you have at least 10% to put toward the down payment. Ideally you want 20% but no less than 10%. If you don’t have enough yet, you can use these savings tricks that actually work.
- Purchase a home that is less than you can afford. If the loan offer you have is for $300,000, look for a home closer to the $250,000 range. This is more of a home that you can comfortably afford.
Tips to Pay off your Mortgage Early
Buy Points to Lower your Interest Rate
When purchasing your home, it is a good idea to ask your lender about buying points to lower the interest rate of your loan.
We had an interest rate of 4.2%. We were able to buy 1 point to lower our interest rate down to 3.2%. We used some of the money from the sale of our first home to cover the cost of the point. It was about $2,000.
By purchasing that point, we would be saving well over $2,000 over the life of our loan. We could have bought another point but it wasn’t going to be worth it financially.
Cancel Private Mortgage Insurance
If you don’t have enough money to put down a 20% down payment, you will be required to pay private mortgage insurance (PMI).
PMI is extra money that you will be paying your mortgage lender. It is normally .5% or 1% cost of the loan for that year. If you bought a $300,000 home you could be paying an extra $3,000 just in PMI.
Once you have 20% equity in your home, you can cancel the PMI. You want to do this as soon as you can so you aren’t paying any more money than you need to.
The lender will not cancel it for you, you have to call and make sure it gets canceled as soon as you hit 20%.
PMI does not go toward paying off your loan it is just an extra fee the lenders charge you to keep them covered in case you can’t pay your mortgage.
Make Bi-Weekly Payments
This is a great way to pay off your mortgage early. Instead of making one payment a month, make two smaller payments.
Take your monthly mortgage payment and divide it by 2. Say you have a $1500 monthly mortgage payment.
You will pay $750 on the 1st of the month and the other $750 on the 15th of that month. You are saving money by paying less interest every single month.
Just by doing bi-weekly payments, we are saving $22,449 and cutting the life of our loan by 4 years.
You can use a mortgage calculator to see how much it will cut the life of your loan.
Some lenders may require a monthly payment in advance in order to set this up, so make sure you talk to your lender about what all will be involved.
More Ways to Pay off your Mortgage Fast
Make Extra Payments
You can pay off your mortgage early just by making one extra payment every year.
Before you do this, make sure your lender doesn’t charge any prepayment penalties.
You simply take one monthly mortgage payment and divide it by 12. For example $1500 would be $125.
Take the $125 and add it to each monthly payment. Make sure that you specify it will go towards paying off the principal balance, not toward paying off interest.
By lowering the principal balance, you are paying less interest on the life of your loan.
If we just make one extra payment every year, that will save us $26,892 in interest and cut our loan by 4 years and 10 months.
By doing both bi-weekly payments and one extra payment each year we will have saved $47,751 in interest and cut the life of our loan by 9 1/2 years!
The best way you can save money to pay off your mortgage early is by living a frugal life. You can see the frugal living tips for 2020 that I am using.
We try to save as much as we can while still living the lifestyle that is comfortable to us. We only shop sales and find ways to make couponing easier even when short on time.
We know our budget and try to stick to it as much as possible. Any extra money that we have left over goes toward paying off the principal of our mortgage.
With some focus and determination, we hope to be completely debt free in the next 15 years ( if not sooner). Our mortgage is the only debt that we have so we are really focused on eliminating that ASAP.
Use one or all of these tips to help pay off your mortgage early.