Paying Toward Your Principal Can Shave Years Off Of Your Mortgage

Ways To Decrease The Length of Your Loan

Owning a home is fantastic, but for most of us, there is a monthly mortgage payment involved. Month after month, year after year, we make payments to lessen the total amount owed, with the end goal of eventually paying off that mortgage. Way back when, people would actually burn their mortgage papers after they had made their last patent, during a special ceremony. This signified financial freedom and the end of house debt. How great would that be?

What Does Making an Extra Payment (or More) Do For Me? 

With that said, wouldn't it be wonderful to pay off your mortgage sooner, rather than later? With some careful planning, and some budgetary concessions, you can absolutely make that happen. Some fun repayment facts:

• With a 30-year mortgage, making one extra mortgage payment PER YEAR direct to the principal will pay off your mortgage in 24 years resulting in a 6-year reduction.
• Making one extra payment per quarter (every 3 months) direct to principal, will pay off your mortgage in 19 years - an 11-year reduction!

Not only will you save on mortgage payments for years on end, but you will also save a significant amount of money in interest payments.

Easier Said Than Done ... But Is It?

You may be saying, that seems like a great idea, but making an extra payment, let alone one every 3 months, is impossible. How can I find that in my budget? We have a few ideas to run past you.

• Instead of making monthly payments, pay biweekly. This strategy only works if your lender allows you to make biweekly payments, or some may allow it but with a fee attached. IF you are able to make bi-weekly payments, you will actually be making 26 half payments or 13 FULL payments, without even realizing it - which results in one extra yearly payment.
• Divide up that extra month's payment. Divide your monthly mortgage payment into 12 and pay that amount each month. This can be easier for some people to handle rather than the entire extra payment at once.
• Look into refinacing. Depending on the circumstances when you initially took out your mortgage, you may qualify for a better interest rate due to a number of factors, and you may be able to make the same mortgage payment but with a shorter term. Many lenders offer special rates for refinancing.
• Break up with your coffee place. Um.... excuse me? Here is some math. If you stop for coffee on your way to work, and on average spend $5 per day, there are 52 weeks per year, minus on average 2 for vacation and 1 for holidays, etc, for a total of 49 per year. 49 weeks x 5 days = 245 days. 245 x $5.00 = $1225. Think of what that could do if you spent that amount towards your mortgage payment, if you brought your coffee from home instead? If you eat out at lunch more than once a week, take a hard look at what you are spending. Is that $10 sandwich from the place down the street worth extending your mortgage, or would a turkey sandwich from home suffice?
• There is more where that came from. Most of us have underused subscription plans, streaming services, cable tv, memberships, etc. If you reduce the number of channels you have on your cable TV, you can save a bit of money per month to apply toward your mortgage. (Ask yourself- Do you really need Netflix, Hulu, AND Disney Plus?) Consider this, there are more than likely several different expenditures that you make every month that are second nature, but not necessarily necessary if you get what we are saying. You may have ever forgotten about some. Take a look and see where your outflow of small amounts are going. 
• Reduce in other ways. Declutter your home, and hold a yard sale. Depending on the time of year, and the number of items, this could result in a tidy profit of hundreds of dollars, most likely on things you weren't using or rarely used. Think about nights out and the costs that incur, could you reduce the frequency, save some money and actually look forward to your outings more because they occur less? 

It might be uncomfortable at first to cut down some of those expenses or activities at first, but you will feel validated and victorious when you receive your mortgage statement at the end of the year, saying how much extra you have paid off, you will feel even better when you have NO house payment at all.

Before You Make Extra Payments

Make sure you don't have a mortgage prepayment penalty by checking with your lender.

If you have any credit card debt, with a high-interest rate, it might be better to put the extra money toward that debt, until that is paid off, and THEN initiate your mortgage prepayment plan. THe key is to stop spending on unnecessary things, or things that just bring you short-term satisfaction and instead, work towards paying off your home.

It may seem like a bunch of doom and gloom to own a home, and in reality, building equity while owning a home, is such a smart thing to do, and certainly beats renting and paying someone else's mortgage and doing nothing for your financial gain. In most cases, real estate is a sound investment, and one that steadily grows year after year.

There are many types of mortgages, with different terms: 30-year, 15-year, ARM (Adjustable Rate Mortgage), and paying off any one of them is a great accomplishment. When you first buy your home, paying off the mortgage may seem like a long, long way away- and it is hard to envision what it will be like for you, and your family, 30 years ahead.  We would like to think that those 30 years will be fiscally sound and stress-free but without a crystal ball, no one can really know.  So, planning for the unexpected may be the best strategy, for achieving financial freedom and stability as quickly as possible.

As a side note, if you are thinking about purchasing a home in the near future, we have some FANTASTIC lenders who will help you get the absolute best rate possible, even when things of late seem to be a little off kilter than in recent years.  In actuality, the current interest rates are “normal” in the grand scheme of things.  Most of us homeowners would be tickled pink to pay today’s rates compared to the high rates of earlier decades.   The incredibly low rates from a few years ago were unprecedented and unlikely to happen anytime in the near future, so these rates actually still make it an excellent time to buy a home.  Rents are steadily increasing, whereas your mortgage payment would remain predictable.