Financial freedom. What would that mean to your family? Would you give to a local charitable organization, pay for your kids college education in full, or take that month-long trip to Europe that you’ve been dreaming about?
If financial freedom is your goal, paying off your mortgage may be one step that can get you closer to your dreams. Check out our Additional Payments Calculator to see how much you could save by paying off your mortgage faster.
If these savings inspire you, check out these 4 ways to pay off your mortgage faster.
TIP: If you have other debt with higher interest rates like credit cards or car payments, develop a plan to pay down those obligations in full before putting additional amounts towards your mortgage. As a rule, the higher the interest rate, the faster you’ll want to get rid of the debt.
1. Round your mortgage payment up to the next hundred. Every penny above the payment amount goes straight to principle, which lowers the total interest you'll pay over the life of the loan.
2. Add an extra payment. Divide your monthly payment by 12 and add that number to your contribution each month. Sticking with our example above, the extra added to each monthly payment is $119.35 ($1432.25/12). If that sounds like complicated math, consider contributing your principle balance in one lump sum every year.
3. Use extra money to pay down the mortgage. Did you sell your mountain bike, get a bonus, or receive a large tax refund? Put that extra money toward your mortgage!
4. Refinance to a lower loan term, such as from a 30-year to a 15-year. Or, if you can't afford the refinance costs right now, just "pretend" you refinanced and increase your payments every month to what the refinanced amount would be.
For example, let's assume you financed $240,000 on a 30-year loan and have a 4% interest rate. Your payments would approximately be $1,541 per month. The same loan on a 15-year term would have a payment of approximately $2,087. If you can afford to pay an additional $546 per month, you can save over $90,000 in interest over the course of 15 years.