In most cases, paying off debt is highly recommended. No one wants to walk around with a dark cloud of student loans and credit card purchases following them.
Mortgages, however, are different. They’re considered good debt, and for several reasons we’ve previously discussed, it’s not always in your best interest to pay them off early. Still, some people dream of the day when house payments are a thing of the past, and for them, there are options.
Here are three ways to to get to the mortgage finish line faster:
1) One-time payments: Let’s say you receive a large cash gift, an inheritance, or a substantial bonus from work, and you’re not carrying other burdensome debt. You can make a one-time loan payment that will be applied toward your principal, and depending on the amount (obviously, the more, the better), you can shave years off the mortgage. If you get a large bonus every year, you can make a one-time payment each year.
2) Biweekly payments: In this scenario, you’re paying half of your loan payment every other week, which equates to 26 biweekly payments each year, and 13 monthly mortgage payments every year, rather than the usual twelve. In short, you’re basically paying an extra month each year, which adds up to multiple years in the end. A 30-year mortgage, for instance, could be paid off in 26 years. As an added bonus, you’ll be building equity faster and right away.
3) Increased monthly payments: It stands to reason that if you pay more each month, you’ll pay off your principal balance faster. So if you start making a lot more money, or have refinanced to a much lower interest rate and are now saving money, making higher payments can shorten your loan term. The maximum increase amount and how often you can choose to increase your monthly payments will depend on your particular lender. Just keep in mind that you should always have a financial cushion or emergency fund, so you should only increase your payments if you’re sure you can afford it.
The first step, before choosing any of the above options, is to take a good, long look at your finances. Make sure all other debts are paid off and you aren’t expecting any additional expenses in the near future. Then talk to a mortgage broker who can help guide you to the right choice, terms, and money-saving methods for your particular situation.