Making monthly mortgage payments can sometimes feel like something you’ll be doing for the rest of your life — but it doesn’t have to be.
Paying off a 30-year fixed-rate mortgage early can save you a bundle in interest charges. For example, if you have a $300,000 mortgage with an interest rate of 5.5 percent, you can cut five years off your loan term and save around $60,000 in interest if you pay one extra payment a year, according to the publication SFGATE.
Here are nine strategic planning and creative cost-saving measures that might require a sacrifice or two but will help you pay off your mortgage early.
1. Rent Out Space in Your Home
Thanks to the new sharing economy, it’s easier than ever to make money from the unused space in your home. You can rent rooms or your entire house to students or vacationers through sites like Airbnb or opt for long-term tenants while you live somewhere less expensive.
Sharing your space with strangers might sound uncomfortable, but you’ll never know until you try it. Plus, hosting students and Airbnb guests can be a relatively short-term commitment. You don’t have to keep doing it if you decide it’s not worth the savings you’d get from paying off your mortgage early.
2. Accelerate Your Mortgage Payments
Accelerating your mortgage payments might be the easiest way to pay off your mortgage loan early. If you make one extra mortgage payment each quarter you’ll save $65,000 in interest and pay off your mortgage early by 11 years, given a $220,000, 30-year mortgage loan with a 4 percent interest rate, according to the Dave Ramsey website.
If you can’t commit to four additional annual mortgage payments, start with one. To do so, divide your mortgage payment by 12 and add that amount to each monthly payment. Make sure the payment is applied to the principal balance and that your lender doesn’t charge any prepayment penalties.
3. Make Biweekly Payments
The biweekly payments system is meant to shorten your loan’s amortization chart or schedule. So instead of making 12 full payments a year, you make a half-sized payment every two weeks, which adds up to 13 payments a year, according to the publication The Mortgage Reports. With that extra mortgage payment, the principal balance of the loan gets reduced, which shortens the payoff period.
Some banks can set up this payoff plan for you, but you should probably do it on your own. That way, you won’t be locked into a biweekly payment contract with the bank if you change your mind.
4. Refinance Your Mortgage
Simply put, refinancing your mortgage is getting a new loan to replace the original. Refinancing your mortgage loan can help you in a couple of different ways:
- You can shorten the loan and commit to higher payments to pay off your debt sooner.
- You can take advantage of better mortgage interest rates.
Refinancing could allow you to pay off your mortgage early — years early, even — and save you thousands in interest.
5. Set a Payoff Date
Use an online mortgage payoff calculator to set a payoff goal that is challenging but attainable. The calculator will show you how much progress you can make toward paying off your loan by a certain date. Once you set your goal, you’ll be more likely to stick to your plan.
6. Increase Your Earnings
Take extra shifts at work, wait tables on the weekends, pick up holiday or seasonal work, freelance, consult, pet sit or do odd jobs. As you earn additional income from your side hustle, put it toward your mortgage loan balance.
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7. Become Super Frugal
Start eliminating all unnecessary expenses: Cut cable, get cheaper insurance and stop eating out or buying new clothes. It might sound extreme, but it works if you use the money you save to pay off your mortgage early.
8. Make a Lump-Sum Payment
If you receive an inheritance, tax refund or bonus, apply it to the principal balance of your mortgage loan. The interest savings could be better than any potential investment.
9. Round Up Your Payment
Rounding up your mortgage payment, even by just a few dollars, can help you pay off the loan early, according to information on the Dave Ramsey website. You can also use an app like Qapital to round up all your purchases and set aside the spare change for an additional payment. It adds up quickly.
By making a few sacrifices and sticking to a plan, you can pay off your mortgage early — and hopefully, be debt-free sooner than you thought.
Barri Segal contributed to the reporting for this article.