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Paying off my mortgage was the best financial decision that I ever made. I previously shared how it has allowed greater flexibility within my family. As a result, I have also become more aggressive at work and have received multiple bonuses and raises in return. Because I no longer have a mortgage, I feel incredibly free.
If you are interested in paying off your mortgage early, here are four ways to help you do so.
1. Make Extra Payments When You Can.
When I first started to pay off my mortgage, I began by rounding up to the nearest hundred. If the mortgage payment was $2,859, I rounded up to $2,900. Although it may not seem very significant, over time, those extra payments really add up. By doing so, I knocked off three months from my mortgage. All I did was add a little over $40 a month, or roughly $1.25 a day.
I received some of the best financial advice when I first started working. My boss encouraged me to strive to live off of the amount of my first paycheck for the rest of my life. Admittedly, at the time, I thought that would be super simple to do. After all, my eyes nearly popped out of my head after receiving my first paycheck. I never thought I’d need more than that. Let me tell you, the temptation of lifestyle inflation is more real than I had imagined.
Even so, I took heed to my boss’s advice. Whenever I received a raise or a bonus, I would increase my monthly mortgage payments. While my friends were buying nice cars, I was still driving a decade-old, well-loved car. My wife affectionately referred to my Honda Prelude as a spaceship, but I was keeping my eye on the prize: no mortgage.
Please note: whenever I made extra payments, I always ensured that it went towards the principal. It doesn’t make sense to have additional money go towards the principal and interest. Why pay more interest than you have to?
2. Find Extra Roommates.
I am an introvert, so being around people constantly can be draining. If I had my preference, I probably would have lived alone before I got married. However, I knew in order to pay off my mortgage that I needed to make the most of my home’s space. Thus, I tried to occupy every room in the house. I quickly found three housemates who would pay rent and help to pay off my mortgage.
Of course, it wasn’t always a perfect situation. It was a rarity to be alone in peaceful silence. But at the end of the day, the short-term sacrifice was worth it.
By receiving rent from the guys each month, I received almost $100,000 over the course of 8 years. I eagerly threw that money towards my mortgage.
So yes, roommates/housemates are definitely worth it.
3. Make Bi-Weekly Mortgage Payments.
If you’re like majority of Americans, you may receive a paycheck every two weeks. In this case, you should have the ability to make bi-weekly mortgage payments. The advantage of this is twofold. Firstly, when you make monthly payments, you make 12 payments per year. When you make bi-weekly payments, since there are 52 weeks in a year, you will make 26 bi-weekly payments. That equates to 13 monthly payments, which would essentially allow you to make an additional “monthly” payment for the year.
Here’s a quick example.
You take out a $200,000 mortgage with an interest rate of 3.5%, and your federal tax rate is 20%. In this case, you could expect to pay around $900 per month. A bi-weekly payment plan would call on you to pay $450 every two weeks.
By repaying the loan on a bi-weekly plan, you would pay off the loan in 26 years and 2 months versus 30 years. This would shave off almost four years. Plus, you would save almost $18,000 in interest over the life of the loan.
Please be aware that certain mortgage lenders make the process to make bi-weekly payments incredibly easy, while others make it incredibly difficult. Make sure before you start to make these biweekly payments that you have checked with your mortgage lender.
Quick side note: you do not need to pay a third party to do this work for you. While they may make it seem difficult or onerous to navigate, it really is not. I encourage you to work with your mortgage lender directly.
4. Refinance Your Mortgage.
One of the easiest ways to pay off your mortgage faster is by refinancing your mortgage into a shorter period of time.
My mortgage started as a 15-year loan at 4.5%. After a couple of years, I refinanced my mortgage due to falling interest rates. I could have opted to lower my payments and pursued another 15-year loan.
Instead, I chose a 10-year loan at 3.5%, which had even lower rates than the 15-year loan at 3.75% at the time. The best part was that I even saved a couple of dollars each month. I poured back those dollars into my mortgage because I had refinanced into a lower rate.
While there are a bevy of options available, any one of these will help jumpstart your way to paying off your mortgage. As someone who has paid off his mortgage, I couldn’t recommend doing so more.