Pay Off Your Home Quickly with These Tips!

Imagine how amazing it would feel to have no monthly house payment. What could you do with all that extra money?

The idea of paying off your mortgage can be pretty daunting. After all, we're talking about hundreds of thousands of dollars. Paying that much money off today would likely be impossible (unless you've won the lottery or had a rich uncle die). However, it's actually quite easy to shave years or even decades off the payment schedule, increasing your equity and saving you plenty of interest in the long run. Check out these tips...

Switch to a bi-weekly payment

Instead of making one monthly payment, you can make a half-sized payment every two weeks. In other words, if your usual mortgage payment is $1,500 a month, you would instead pay $750 every other week. This will have the nearly the same impact on your budget as one monthly payment, but because there are 52 weeks in a year, a biweekly payment schedule will result in 13 full-sized payments a year instead of the normal 12. You'll be making an entire extra payment every year without having to scrounge around for the extra money. To look at some real-life numbers, if you have a 30-year $200,000 mortgage at an interest rate of 5%, making biweekly instead of monthly payments would save you over $30,000 in interest and allow you to pay off the loan almost five years early.

Budget for an extra payment each year. If you don't want to hassle with biweekly payments, you can get similar savings by sending in an extra payment once a year. A tax refund or bonus may provide the cash needed to use this strategy.

Drop the entire amount toward the loan principal, and you could reduce your repayment term by as much as seven years if you make extra payments annually.

Make extra principal payments

When you send in your monthly payment, most mortgage lenders will allow you to make an extra payment and mark it "principal only," meaning that this payment will go to pay down the principal rather than both the principal and interest on the loan. Paying down even a little bit of extra principal early on in the loan can save you quite a lot in interest charges, not to mention getting you out of the loan several years ahead of schedule. So consider sending just a little extra to the loan holder every month as an extra principal payment. 

Recast your mortgage

If you get an inheritance or other windfall, consider recasting your mortgage. Some loan servicers offer this option when they receive a lump sum payment toward the principal. For a fee, companies will reamortize the loan so that the term stays the same, but the monthly payment is lowered based upon the reduced principal.

Refinance your mortgage into a shorter-term 

Got a 30-year mortgage? Refinancing it as a 15-year loan will blast you through that mortgage a whole lot faster, and you will likely get you a better interest rate as well -- shorter loan terms are typically paired with lower interest rates. And thanks to the shorter time frame, you'll pay a lot less in interest -- so the payments on a 15-year loan are not double the payments of a 30-year loan; they're significantly less. Pull up a mortgage calculator and play around with the numbers to see how much you'd have to pay to do a 15-year refinance. And if the monthly payment for such a loan would be more than you can afford, consider a 20-year loan instead.