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.
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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