Did you know that mortgage rates have been climbing since 2021? In 2021, the average interest rate for 30-year fixed-rate mortgages was lower than 3%. However, the rate briefly touched 7% in late 2022 and has been between 6% and 7% since the beginning of 2023.
That means that the lifetime cost of a mortgage has gone way up in the past few years. No wonder more and more people are getting interested in tips for paying off mortgages ahead of schedule.
Other people want to pay off their mortgage faster just because they understand it will contribute to their lifelong financial success. So what can you do to pay off your mortgage faster than expected?
Read on to learn all about the ways you can pay off your mortgage ahead of schedule!
The most straightforward way to pay off a mortgage faster is by paying more than you have to.
When people first start making mortgage payments, almost all of the money they are paying goes to cover their interest rates. Only after many years of doing this do mortgage payments start to pay off more and more of the principal amount of the loan.
However, when you make an extra mortgage payment, all of the extra money you pay goes straight to paying off the principal loan amount. The earlier you make extra mortgage payments, the bigger the effect they have on the total amount you will pay for your mortgage.
Another great thing about this strategy is that it is flexible. You might think that you can pay a higher amount for your mortgage every month until it is paid off ahead of schedule. However, as things come up, it might turn out that you need a little extra money for expenses here and there.
Using this strategy, you will be able to update your initial plans and forgo an extra mortgage payment whenever you need the money.
When you refinance your mortgage, you get a new loan that replaces your original one. Your new loan will have new terms. If you are willing to pay higher costs, then you can negotiate a new loan with a higher monthly payment.
Keep in mind that this strategy is less flexible than the previous one. If the time comes when you do not have the money you need to pay for a higher mortgage amount, then you will start to become late on your payments. That makes this a better strategy if you are certain that you will always have enough money to pay a higher mortgage amount than you have right now.
Loan modification is mostly an option for people who have some reason for struggling with their mortgage loan. For example, someone might start to fall behind on their payments because of increased expenses or loss of income.
In such cases, your mortgage provider will not really want to foreclose on you. After all, they made a mortgage agreement with you in the first place because they thought it would be a profitable investment. As a result, they may be open to a loan modification that lowers your interest rates.
If you modify your loan in this way, then you will be able to pay it off faster by continuing to make payments similar to your current higher ones.
If you have other debts, there is a good chance that some of them will have higher interest rates than your mortgage. What that means is that the fastest path to paying off your mortgage might involve you not doing anything extra to pay off your mortgage at all until those other debts are repaid first.
After all, every extra dollar you use to pay off your mortgage loan instead of another loan with a higher interest rate is a dollar that will be accruing interest with your other loans.
Keep paying off all of your debts with higher interest rates than your mortgage until they are paid off. At that point, you may use the income that was going to pay off other debts to start paying off your mortgage faster.
Paying your mortgage off ahead of schedule will be much easier if it is a smaller loan. Downsizing your home can be a powerful way to get a new mortgage that will be easier to pay off faster.
This does not always seem like an attractive option to everyone. However, it is a good idea to walk through the actual math of how much money you would save if you were to downsize to a smaller home. Once you know that number, you will be able to assess for yourself if it is worth it to you to move.
Recasting your mortgage can lower your monthly payments without changing your interest rate. You might wonder why mortgage providers would be open to this. The reason is that they will often charge a significant lump sum to recast your mortgage.
However, that lump sum will go toward paying off your principal loan amount. If you can find a way to save up to this lump sum, then recasting your mortgage can help you pay off your mortgage faster than expected.
We hope that learning how to pay off your mortgage faster has been helpful to you. With rising mortgage interest rates, it is more profitable now to pay off your mortgage faster than at any time in recent history. On top of that, paying off your mortgage faster is the perfect way to accelerate your long-term financial growth.
To learn more about how to pay off your mortgage ahead of schedule, reach out and get in touch with us here at any time!