Once you’ve asked if you should pay off your mortgage early, it is time to ask, how can I pay off the mortgage early? This is the fun part.
Let me start off by saying that you shouldn’t need to pay someone or buy a product to help you pay off the house early. Instead, simply send the bank extra payments to add to your principal whenever you have money to pay towards the debt.
[pullquote]Make Sure Your Extra Payments Are Being Applied to the Principal[/pullquote]
Banks typically do one of two things with extra payments. They will either use your payment to apply to the principal (the amount you have left to pay them), or they will use it to apply to future payments.
You want to be sure your payments are applied to the principal. This is the only way to shorten the term of your mortgage and to save you money on interest.
Call your bank or financial institution and ask them what you need to do to make extra principal payments. Typically, you would write a note on the check – apply to principal or principal prepayment. Always be sure to follow up and confirm your payments have been recorded properly. By default, some banks will apply your extra money towards future payments because it is more lucrative for them.
5 Tips to Help You Pay Off A Mortgage Early
Discover Lost Money: Budget
If you are out of the budgeting habit, you need to make a budget. When you set up and stick to a budget, you will stop some of your money leaks which will allow you the opportunity to have extra money to put towards your house payment.
Set An Aggressive and Measurable Goal
I find that people are always more motivated to accomplish something they find challenging. When it comes to running, I’ve always found that when I have an aggressive goal (like a full or half marathon), my training is more consistent and productive. When I don’t have a set reason to run, the running regiment slides.
[pullquote]Mark an actual date on the calendar when you plan to send in your last mortgage payment and work aggressively towards that goal.[/pullquote]
Spend Money Before You Earn It
You should be budgeting for unexpected income. We are often exposed to unexpected sources of income, but when it arrives, we do little to capitalize on those opportunities. Decide that every dollar or every percentage of extra money that comes to you will be applied towards your home.
Add a Budget Line Item
If you don’t make your mortgage repayment a priority, it will not happen. In your budget, under your mortgage payment, open up a place for extra mortgage payment. Put it in your budget so that your mortgage repayment plan won’t take a back seat to other spending whims.
Intentionally Be Financially Unbalanced For a Short Period of Time
The closer you get to paying off the mortgage, the more you’ll consider doing something drastic. Cancel a vacation for a year. Scale back your retirement contributions for a few months. Sometimes when you get really close, you’ll just want to dive for the finish line. That’s fine. You can always easily get back on track with a balanced financial plan once the house is paid off.
Some folks might try to help you pay off your mortgage using tips and tricks – like making biweekly mortgage payments. At the end of the day, the fastest way to pay off the mortgage is by finding, making, and applying more money to the principal. You can use a mortgage repayment calculator to help you calculate the money you can save.
What strategies do you use to pay off the mortgage early? How do you find extra money for house payments?