Top 3 Ways How to Pay Your Mortgage Down Faster
While Growing Equity In Your Home!
In order to fully understand how to pay your mortgage down faster, it’s helpful to understand your relationship with your loan. When it comes to managing your mortgage, there are two types of people.
I am the first type. I know I have a mortgage and I dutifully pay it off every month. I have a good idea of the balance of my loan at any given time, but it’s not down to the penny. I don’t check the balance. I’m more of a set it and forget it kind of girl.
The second type is like my husband Doug. He checks the balance constantly, even if we haven’t made any changes. He could tell you our exact balance on any given day and what the balance will be in five years. He gets a thrill from seeing that balance go down. He loves a good amortization schedule.
Have you ever looked at your amortization schedule for the loan on your home? It’s a pretty scary document! It outlines exactly what your balance will be for the next 30 years. Yikes!
So, what does this have to do with how to pay your mortgage down faster? Everything!
Both types of people, the set it and forget it and the thrill-seeking balance checker, likely are making one monthly mortgage payment a month, twelve months out of the year, and then go about their daily lives. Their amortization schedule aligns perfectly with their loan balance. I’m here to help you change the game. Follow these tips and you will pay down your mortgage faster and will constantly be ahead of where your amortization schedule predicts.
Why should you do this? The faster you pay your mortgage down, the more equity you have in your home and the more money you will get when you go to sell your home. In other words, the more you pay towards the principal of your loan (not towards interest or your lender escrows), the less interest you pay, so more money goes towards your equity and less goes to your bank!
Now that you know WHY you should do it. It’s time for the HOW. So, how you ask? It’s easy! Here are some of my favorite ways to pay down your mortgage faster.
- PAY YOUR HALF OF YOUR MORTGAGE PAYMENT, TWICE PER MONTH. This is a no-brainer! By paying your mortgage in two parts once per month, you end up making one extra mortgage payment per year, resulting in 13 full-sized payments by the end of the year instead of just 12. For some, this means your 30 year mortgage can be paid down five years quicker! The best part is – that entire mortgage payment all goes towards principal instead of to interest and your escrow. Almost all banks have an option to set your mortgage up this way. Just be sure that any extra payments are paid towards principal.
- SET A RECURRING TIME OF YEAR YOU WILL MAKE AN ADDITIONAL PAYMENT. Make a plan to add a certain amount to your principal either quarterly, biannually or annually. It doesn’t matter when you do it, just make a plan and schedule it, or set a reminder for yourself to do so. Do you always get a good bonus or income bump in a certain time of year? Do you usually get money back at tax time? Use it! It doesn’t matter how large or how little the amount is, just get into the habit of paying it down, slowly and steadiily.
- REFINANCE. While this is not something everyone can do (unlike the two above options), if you refinance your loan into a shorter loan term (for example a 10 or 15 year amortization), you pay significantly less interest and will pay of your loan in half (or less) of the time of a 30 year loan. If you would like to talk to a lender about refinancing, just reach out, we are happy to connect you with a great one. You can also read our tips for picking a lender here (LINK).
Regardless of which of these tactics you choose, they work equally well for both types of personalities. You set it & forget it, while watching your balance improve over time. It’s a win-win!
If you’re thinking about making a move in the near future, we are happy to walk you through which options make the most sense for your specific situation, whether you are buying your first home, moving up, downsizing or anything in between. Reach out below!
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