May 27th, 2011
For many people, the thought of a 30-year mortgage – 30 years of debt – is a scary thought. Though 15-year fixed-rate mortgages are available, and the interest rates are much lower, the payments are often too high for the average first time homebuyer to afford on a monthly payment.
Luckily, there are ways to shorten the life of your loan without being locked into higher payments. In his article “5 Ways to Pay Off Your Mortgage Faster,” JR Hevron discusses some tricks for paying off your mortgage sooner.
Large lump sum payments. Any time you receive unexpected, extra income – like tax returns, bonuses, lottery winnings, inheritance – you should use it towards your mortgage. This type of money often “burns a hole in the pocket,” so it’s better to put it to good use right away before it’s wasted.
Pay a little extra each month. Decide on how much extra you’re going to pay, whether it’s 15 percent or rounded up to the next hundred (if your payment was $1066, make it $1100). Hevron says,
One trick is to pay with a separate check and notify your lender that the payment is only to be used for the reduction of principal in order to build equity more quickly. The extra check is for tax purposes as principal payments are not deductible.
If you can’t afford to pay extra each month, just do it as often as you can.
Bi-weekly mortgage payments. Although it can be more difficult to remember, some people chose to make a bi-weekly mortgage payment, rather than once a month. Hevron says you’ll end up getting in an extra mortgage payment per year this way.
Before you begin paying off your mortgage early, though, make sure you don’t have any other debt that charges more in interest than your mortgage does. If you do, it makes more sense to pay that debt off first.