Does 30 years seem like an excruciatingly long time to be tied to a commitment?
I don’t know about you, but I certainly think so. Imagine buying a house at age 30 … and not paying it off until you’re 60. That’s effectively your entire working adult life. I don’t know about you, but I think that sounds terrible.
So with that in mind, I’ve compiled a list of tips that can help you pay down your mortgage early.
#1: Refinance.
Mortgage interest rates are at record lows. People with good credit can snag 3.5 percent to 3.75 percent APR’s on their mortgage.
“Yes,” you might be thinking, “but I’m already 10 years into my mortgage, and refinancing would re-set the amortization cycle … starting me back at “Year 1,” when the bulk of my payments go towards interest rather than principal. Why would I want to do that?”
That’s true, it will. But your monthly payments will also drop. If you continue making the same payment, even after you refinance into a lower monthly payment, you’ll quickly make up for that lost time — especially if you’re less than 20 years into your mortgage. (Of course, run a spreadsheet to see how that will play out for your particular case.)
#2: Add $20 Per Month (Or More) to Your Payment
Lots of people think that they don’t have the money to make an “extra” payment, above-and-beyond the amount that they’re already paying. That’s why I encourage people to make an extra $20 payment on their mortgage bill. After all, almost everyone can afford $20 per month.
Once you get into the habit of paying an extra $20/month on your mortgage, the ‘overpayment’ becomes addictive. Soon you’ll be finding ways to cut your costs, or increase your working hours, so that you can pay an extra $50 … $100 … even $400+ on your mortgage.
#3: Start Early
You hear this advice all the time within the personal finance world: the earlier you start, the better. That’s true for saving for retirement, and it’s also true for pre-paying your mortgage.
During the first few years of your mortgage, most of your payments are going towards interest. Very little is actually going towards principal reduction. The deeper you get into your mortgage repayment schedule, the more your contributions will apply towards principal pay-down.
But if you start applying extra payments towards your principal early within the mortgage cycle, you’ll reduce the compounding interest that the principal balance carries. That’s a complex, technical way of saying that the earlier your start making extra mortgage payments (applied to principal), the better.
#4: Fight Your Property Taxes
Counties charge property taxes based on their assessed value of the home. But unfortunately, many counties haven’t adjusted their assessed values in light of the housing crash. That means you might be paying property taxes on an assessed home value that’s much, much higher than your fair-market home value.
If you suspect that this has happened to you, file a petition with your country to appeal your property tax rate. If the county lowers your property taxes, it will have the effect of also lowering your monthly mortgage payment (since taxes are escrowed each month as part of your mortgage payment). Then continue paying the same mortgage bill as you did back when you had higher taxes. The difference will be applied towards principal reduction, which will help you get rid of your mortgage early.
Kennedi writes about money-saving tips for women for Face & Fitness.
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Great tips, I personally don’t want to be stuck paying my mortgage for 30 or so years.
Mark Ross recently posted..Why Is Your Credit Score Important And How You Can Improve It
Neither do I, Mark!!
Kennedi recently posted..Free Ways to Get Motivated to Exercise
Paying a mortgage for 30 years sounds horrible to me. We really want ours gone by 30.
Michelle recently posted..Fun Things to do in St. Louis – FinCon Fun!
I’m glad you’re dedicated to an early pay-off … I’m sure you’ll get yours out-of-the-way in no time!
Kennedi recently posted..Free Ways to Get Motivated to Exercise
One point on refinancing. If you’re far into your mortgage, you can likely refinance into a shorter term mortgage. I went from a 30 year fixed to a 15 year fixed with much lower interest rate. My monthly payments are just slightly higher, but I’m paying more principal than interest almost from the first payment.
Great point, Jack!! And good for you for paying more in principal than in interest!!
Kennedi recently posted..Free Ways to Get Motivated to Exercise
If you refinance, you should look at a loan length that will have you finishing the payoff of your new loan at or before the date of your original loan. So if you’re 5 years into a 30 year mortgage, you should inquire about a 15 or 20 year mortgage. With the scenario you described, 10 years into (I’m assuming) a 30 year, then go for a 15 year on the refinance. You’ll get an even lower rate, and your payments will likely be the same or less than what you’re paying now, all for the pleasure of being done 5 years sooner.
Money Beagle recently posted..How Hard Should I Press To Get Last Month’s Discount?
Excellent point! It’s a win-win … the same payments, lower interest rate, shorter pay-off!
Kennedi recently posted..Free Ways to Get Motivated to Exercise
We are in the same boat. For various reasons we’ve been able to make double and TRIPLE payments toward the principal over the past 4 months! We didn’t have enough to avoid the additional PMI when we closed so we’re trying to get past the 20% mark so we can get rid of it. Thanks for the tips!
Jessica @ Budget for Health recently posted..How to dice an onion
Thats great! I love hearing from people who are making TRIPLE payments … that’s impressive!!
Kennedi recently posted..Free Ways to Get Motivated to Exercise
Good post. We utilized all of your tips to pay off our house in 9 years. We refinanced a couple of times. The first time was from a 30 year to a 15 year. The second stayed at 15 years, but like you pointed out, we kept making the previous payment amounts. The final payment was a $50k lump sum just to get the mortgage done with. It sure felt good. And our cash flow now is great.
Bryce @ Save and Conquer recently posted..401(k) Balances Are Up, But Millennials Should Save More
Congratulations!! I hope to be in your shoes in the not-too-distant future (a few years, hopefully!)
Kennedi recently posted..Free Ways to Get Motivated to Exercise
I like how you said that overpayment can become addictive. It really can, and that applies to any debt. An extra $20 might not seem like a lot, but when you start to see results of a few twenties adding up, you’re motivated to find more to add on to the payments.
Alex @ Searching for Happy recently posted..Happiness Experiment 42: Holding Each Other to an Exercise Pledge
Thanks Alex! Yeah, once you start to see your balance owed diminish, and you perhaps shave a month or two off your payment deadline, you start to get pretty excited about figuring out how to do more …
Kennedi recently posted..Free Ways to Get Motivated to Exercise
#2 is my option. Since I am a competitive person, I started out with a few dollars each month extra and then challenged myself to increase it. At the end of each year, I look to see how much extra I paid and then try to beat that number the next year.
Jon @ MoneySmartGuides recently posted..Your Free Credit Report: 3 Times A Year
I like how you’re able to use your natural competitiveness to your advantage! That’s smart!
Kennedi recently posted..Free Ways to Get Motivated to Exercise
I did a refi about 2 years ago down to a 3.875% rate, and also made it a 20 year mortgage. Just last year we switched to auto payments every 14 days that will reduce the life of the mortgage to 17 years and save thousands on interest. Some months we end up paying three, half payments, that can be a checkbook killer, but we get by.
We also went to the township to fight our tax assessment, we won and got our taxes reduced by several hundred dollars, too bad it doesn’t go into effect until next year.
We expect to have 20% paid by January 2014, that will get rid of pmi. After that, it’ll be smooth sailing until it’s gone!
Thanks the plan anyway.
[…] Tips For Paying Down Your Mortgage Quickly- Life And My Finances […]
Paying a mortgage for 30 years of ones adult life does sound like a long stretch.
Nice plan: Making extra payments would probably mean stretching budgets a bit, but if it helps in clearing the mortgage earlier, by all means one should go for it.
Simon @ Modest Money recently posted..Lending Club Review – Peer to Peer Lending Platform Review
I cannot imagine being stuck in a 30-year mortgage. These are all great sensible tips. I’ll definitely note all of these for future reference. Thanks!
[…] you first buy a house and start paying down the mortgage, the majority of your payment goes to the interest payments, and only a small portion pays down […]