A 2019 Zillow report revealed that 63% of homeowners continue to have mortgage debt in the United States. While this is a marked improvement with older homeowners becoming free of mortgage debt, it continues to be higher than student loan and credit card debt for most Americans.

Learning how to pay off your mortgage fast can improve your equity and offer more financial security. It also helps you direct more money toward your retirement accounts, prepping to spend your golden years in the utmost comfort. Read on as we discuss some ways to help you pay off your mortgage faster.

1.     Talk to Your Mortgage Company

Before you try and figure out how to pay off your mortgage fast, you must talk to your mortgage company or bank. In many cases, mortgage companies charge pre-payment penalties if you attempt to pay off a loan in advance. There’s also a possibility that your mortgage company will only accept advance payments at a specific time.

If your mortgage company allows you to pay off your mortgage early, you need to make sure they record the repayments properly and apply them to your principal amount. As it often happens, the mortgage company may just count it as payment for the next month.

2.     Refinance Your Mortgage

With interest rates lower than before, you can also try and refinance your mortgage as it allows you to qualify for a lower interest rate. This automatically reduces the interest amount you pay. You can also choose to shorten the term length of your loan. While this will likely increase your monthly payment amount, it can allow you to pay off your mortgage faster.

We suggest carefully reviewing the terms and conditions if you plan to refinance your mortgage. You should make sure that you can afford to pay the higher mortgage amounts regularly. Don’t bite off more than you can chew here. After all, a mortgage isn’t the only expense you have. If you can’t afford to pay for other necessities, then trying to pay off your mortgage early may just add to your problems.

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3.     Increase the Frequency of Your Payments

You can also increase the frequency of your payments to pay off your mortgage more quickly. Normally, you’d make monthly payments. To increase your frequency, you can sign up for a bi-weekly payment plan. This would allow you to make mortgage payments every two weeks.

When you switch to fortnightly payments, you make 2 extra mortgage repayments every year. This allows you to reduce the total length of your loan term. It also helps save a significant amount of money in interest. Talk to your bank about the possibility of a bi-weekly payment plan. They will also be able to tell you how much money you can save if you choose this option. 

4.     Use Any Extra Money to Pay Off Your Mortgage Faster

Suppose that you have received a tax refund or inherited or sold an asset. You can use a portion of this extra money to pay off your home loan. You’ll have to revisit the terms and conditions of your loan before you do this.

Many fixed-rate home loans allow homeowners to make annual lump sum payments equivalent to a certain percentage of the total loan amount. As long as you are not incurring a penalty on the extra repayment, this is an effective way to get rid of your mortgage debt early.

A lump-sum payment is also useful because the entire amount goes toward paying off your principal loan balance. For regular mortgage repayments, a significant portion of what you pay counts as interest. As a result, the term length of your loan and your loan balance don’t get reduced by much.  

5.     Make One Extra Payment Annually

You can talk to your bank and inquire about making one extra mortgage repayment each year. This can significantly reduce the term of your loan. If an extra payment feels like something you can’t afford, you can also break it down to suit your budget.

For example, you can pay 1/12 extra every month. If your monthly mortgage payment is $1000, then you can pay approximately $1,084 every month. By the end of the year, the additional money would count toward an extra monthly repayment. It won’t hurt your account much and you can pay off your mortgage faster.

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6.     Float a Portion of Your Mortgage

Unlike fixed-rate mortgages, the interest rates on a floating mortgage can vary as per market conditions. While this can come with unexpected costs if the interest rates increase, it also has its benefits.

The biggest advantage of a floating mortgage is that it allows you to make extra repayments without receiving a penalty. Since extra repayments are a vital part of getting rid of your mortgage debt early, you can keep a portion of your mortgage as floating. This can make it significantly easier to make more lump-sum payments and extra repayments throughout the year.

We recommend talking to your bank to discuss your options and whether a floating mortgage is the right choice for you.

Wrapping It Up

Having a 15-, 25-, or 30-year mortgage is a big commitment. Making an effort to reduce your loan term by making extra repayments can do wonders for your financial situation. You may not realize it now, but learning how to pay off your mortgage fast can save you quite a bit of money in interest. Of course, you need to consult your bank first to avoid earning a penalty on any extra repayments or lump sum payments.

If you are planning to apply for a mortgage, we also recommend preparing in advance and making a larger down payment. This can reduce your interest rate and decrease your cost of borrowing. Did you find this article helpful? Follow Rykerblogs to learn more about personal finance and investments

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