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Have you ever asked how you could pay off your mortgage early? If so, these tips are just what you need to find ultimate financial freedom and to become debt free. For most families, the home mortgage is by far the largest debt they currently have. While many don’t consider that part of getting debt free, we do. Being able to pay off your mortgage early means you can live happily in retirement without the concern of a month to month payment. Any extra funds you save before retirement just help make things easier for you, your family, and ultimately future generations of your family.
5 Ways To Pay Off Your Mortgage Early
Let your home become an income property. One of the easiest ways to actually pay off your mortgage early is to let your home earn money for you. This means allowing part of your home to be an income property. If you have a finished basem*nt or garage, it may be time to close off that area and rent it out to a small family or single individual. You can also rent out individual rooms in your home if you have a multi-level home with extra bathroom space.
While this may seem dangerous or frustrating, there are many options that make this a great choice. Renting rooms to responsible individuals you already know (from church, work, or social groups) is a great place to begin. You can also require a deposit and background check just as you would for any rental property. This works best when you have a space that can be entered separate from the main living quarters, or when you are renting to a family member or friend you feel comfortable having in your home around your belongings on a regular basis.
Begin paying double payments each month. If you have the room in your budget to do so, this is by far the most obvious choice for how to pay off your mortgage early. Many people don’t know or realize that while you have to pay that minimum balance each month, you can easily pay much more than that any time you want to pay down your balance.
Apply all refunds and bonuses toward your mortgage account. If you get an end of year bonus or receive a tax refund each Spring, it’s a great time to simply apply that money directly toward your home mortgage debt. By paying down larger portions of your mortgage each year you will find yourself much closer to an early payoff date.
Refinace when the interest rate is lower. This is something that many question doing, but is actually a great tactic when the interest rates are low. The chance to refinance your home is often used as a means to put money toward other debt, but it can also be used simply to shorten pay off time and lower interest rates. This helps you to get out from under that home mortgage debt much earlier.
Downsize other areas of your life. If you can’t or don’t want to actually downsize your home, you can easily downsize every other area of your life to create the income needed to pay off your mortgage early. Selling additional cars, purging items you no longer need or use, and even downsizing your routine so you aren’t spending as much on outside activities are all great ways to free money in your household budget to pay down debt and specifically pay off your mortgage early. Check out our post on How to Become a Minimalist to downsize now.
Add a secondary income to your budget. If you are a single income household, it’s time to start rethinking that option. If both parties are working full time it could mean changing your job or even adding an additional part time job into the mix. When you are serious about how to pay off your mortgage early, you won’t mind working a few extra hours each week. You can also decrease your income by going on a spending freeze.
These few tips for how to pay off your mortgage early are just the bginning of many ways you can make a difference in your financial life. Make sure you are following along on our debt free journey! Comment below and let us know how you plan to pay off your mortgage early.
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FAQs
Increasing your monthly payments, making bi-weekly payments, and making extra principal payments can help accelerate mortgage payoff. Cutting expenses, increasing income, and using windfalls to make lump sum payments can help pay off the mortgage faster.
How to pay off a $100,000 mortgage in 5 years? ›
Increasing your monthly payments, making bi-weekly payments, and making extra principal payments can help accelerate mortgage payoff. Cutting expenses, increasing income, and using windfalls to make lump sum payments can help pay off the mortgage faster.
What is the 10 15 rule for mortgages? ›
The 10/15 mortgage rule is a concept made popular by a real estate social media influencer. It suggests that homeowners who can afford substantial extra payments can pay off a 30-year mortgage in 15 years by making a weekly extra payment, equal to 10% of their monthly mortgage payment, toward the principal.
What happens if I pay 3 extra mortgage payments a year? ›
Making additional principal payments will shorten the length of your mortgage term and allow you to build equity faster. Because your balance is being paid down faster, you'll have fewer total payments to make, in-turn leading to more savings.
What happens if I pay $500 extra a month on my mortgage? ›
Making extra payments of $500/month could save you $60,798 in interest over the life of the loan. You could own your house 13 years sooner than under your current payment. These calculations are tools for learning more about the mortgage process and are for educational/estimation purposes only.
What happens if I pay an extra $100 a month on my mortgage? ›
If you pay $100 extra each month towards principal, you can cut your loan term by more than 4.5 years and reduce the interest paid by more than $26,500. If you pay $200 extra a month towards principal, you can cut your loan term by more than 8 years and reduce the interest paid by more than $44,000.
How many years do two extra mortgage payments take off? ›
But if you have a relatively recent loan, you're likely looking at tens of thousands of dollars in savings and cutting as much as eight years off the life of your loan. Obviously, not everyone can afford to make two extra mortgage payments a year. You're basically increasing your housing costs by 16%.
Is it better to pay lump-sum off mortgage or extra monthly? ›
Regardless of the amount of funds applied towards the principal, paying extra installments towards your loan makes an enormous difference in the amount of interest paid over the life of the loan.
What is the 2 2 2 rule for mortgage? ›
A good way to remember the documentation you'll need is to remember the 2-2-2 rule: 2 years of W-2s. 2 years of tax returns (federal and state) Your two most recent pay stubs.
What is the golden rule of mortgage? ›
The 28% rule
This rule states that your total mortgage payment — including principal, interest, taxes and insurance — shouldn't exceed 28% of your gross monthly income. So if you and your partner earn $12,000 before taxes, for example, then your monthly mortgage shouldn't be any higher than $3,360.
You might want to pay off your mortgage early if …
You want to save on interest payments: Depending on a home loan's size, interest rate, and term, the interest can cost hundreds of thousands of dollars over the long haul. Paying off your mortgage early frees up that future money for other uses.
Is there a negative to paying off mortgage early? ›
Before paying off a loan ahead of schedule, it's important to read the fine print. Based on the terms of your loan, you could be subject to a prepayment penalty for paying off your mortgage early. Typically, loans older than three years are not subject to this type of penalty.
Does it hurt credit to pay off mortgage early? ›
It's important to know that paying off a loan early doesn't impact your credit any differently than if you were to pay it off on time.
How to pay off a mortgage faster with biweekly payments? ›
Biweekly payments accelerate your mortgage payoff by paying 1/2 of your normal monthly payment every two weeks. By the end of each year, you will have paid the equivalent of 13 monthly payments instead of 12. This simple technique can shave years off your mortgage and save you thousands of dollars in interest.
