Take Control of Your Mortgage: Strategies for Faster Repayment
June 1, 2023
6 min read
Paying off a mortgage can feel like an uphill battle, and many homeowners are looking for ways to take control of their debt and pay it off faster. Fortunately, there are multiple strategies you can use to reduce your mortgage balance and shorten your repayment timeline.
5 Effective Strategies for Paying off Your Mortgage Faster
Paying off your mortgage sooner can be a life-changing experience, eliminating the feeling of anxiety and uncertainty. But it can seem daunting, particularly if you're on a lengthy repayment plan.
The good news is that proven strategies can be used to accelerate your mortgage payments and reduce the time it takes to become mortgage-free. Here are five powerful strategies that have been tested and proven to work:
1. Refinance to a Shorter Term Mortgage
If you're looking for a way to pay off your mortgage faster, one strategy to consider is refinancing to a shorter-term mortgage. Refinancing refers to the process of substituting your current mortgage with a new one that has more favorable terms, including a shorter period or a lower interest rate.
Benefits of refinancing to a shorter-term mortgage:
- Lower interest rate: Shorter-term mortgages typically have lower interest rates than longer-term mortgages. This means you'll save money on interest charges over the life of your loan.
- Pay off your mortgage faster: With a shorter-term mortgage, you'll make higher monthly payments, which means you'll pay off your mortgage faster.
- Equity accumulation: Paying off your mortgage faster means you'll build equity in your home more quickly, which can be used as collateral for future loans or can help you access a larger line of credit.
Considerations before refinancing:
- Closing costs: Refinancing comes with closing costs, which can add up to several thousand dollars. Ensure you understand the refinancing costs and factor them into your decision-making process.
- Monthly payments: Refinancing to a shorter-term mortgage means you'll have higher monthly payments than you do with your current mortgage. Make sure you can afford the higher payments before you make the switch.
- Credit score: Having a strong credit score is essential when refinancing. Make sure your credit score is in good standing before submitting an application for a refinance.
If you're unsure whether refinancing is right for you, consider speaking with a financial advisor or mortgage specialist.
2. Make Extra Payments
Making extra payments on your mortgage is a simple and effective strategy for paying off your mortgage faster. By paying more than your minimum monthly payment, you'll reduce the principal balance on your mortgage, which will result in less interest charged over time.
Benefits of making extra payments:
- Pay off your mortgage faster: Making extra payments will reduce the principal balance on your mortgage, which means you'll pay off your mortgage faster.
- Save on interest charges: Lowering the principal balance on your mortgage will result in a decrease in interest charges throughout the duration of your loan, which equates to savings over time.
Tips for making extra payments:
- Understand your mortgage terms: Before making extra payments, make sure you understand your mortgage terms. Some mortgages have prepayment penalties or other restrictions on extra payments.
- Automate your payments: Set up automatic payments to ensure you make your extra payments on time each month.
- Apply extra payments correctly: Make sure your extra payments are applied correctly to your principal balance. Check with your mortgage lender to ensure they're applied as intended.
To make the most of this strategy and take control of your mortgage, you need to understand your mortgage terms, create a budget, and automate your payments - allowing you to achieve financial freedom sooner.
3. Biweekly Payments
Biweekly mortgage payments are another effective strategy for paying off your mortgage faster. Instead of making one monthly payment, you'll make half-payments every two weeks, which means you'll make 26 payments per year or the equivalent of 13 total payments.
Benefits of biweekly payments:
- Pay off your mortgage faster: Biweekly payments will reduce the principal balance on your mortgage, which means you'll pay off your mortgage faster.
- Increase equity: Quickly clearing your mortgage debt means you'll accumulate equity in your house more rapidly, which can be used as security for other mortgages or to gain access to a bigger credit line.
Considerations before switching to biweekly payments:
- Mortgage terms: Before switching to biweekly payments, make sure your mortgage terms allow for this type of payment plan. Some mortgages have restrictions or penalties for biweekly payments.
- Budget: Determine if you can afford to make biweekly payments before switching. Making an extra payment each year implies that you may need to adjust your monthly budget.
- Payment timing: Ensure your biweekly payments are timed correctly to avoid late fees or missed payments.
Before switching to biweekly payments, ensure your mortgage terms allow for this payment plan and determine if it fits your budget.
4. Lump Sum Payments
Making a lump sum payment on your mortgage can be an effective way to get mortgage-free quicker. This is an immediate, single payment you make to decrease the principal balance of your loan.
Benefits of lump sum payments:
- Pay off your mortgage faster: Lump sum payments reduce the principal balance on your mortgage, which means you'll pay off your mortgage faster.
- Lower your interest costs: By lowering the principal balance of your mortgage, you'll pay less interest over the lifetime of your loan.
Considerations before making a lump sum payment:
- Prepayment penalties: Before making a lump sum payment, check if your mortgage has a prepayment penalty. Some mortgages charge a fee for early repayment.
- Interest rate: Make sure you're putting your money towards the mortgage with the highest interest rate first.
- Budget: Make sure you can afford a lump sum payment before doing so.
5. Reduce Expenses and Increase Income
Another effective strategy for paying off your mortgage faster is to reduce your expenses and increase your income. By finding ways to reduce your expenses and increase your income, you'll have more money available to put toward your mortgage payments.
Tips for reducing expenses and increasing income:
- Create a budget: Make a budget and track your spending to pinpoint areas where you can cut back on expenses.
- Cut unnecessary expenses: Eliminate unnecessary costs, such as subscriptions you no longer use or dining out.
- Shop around for better rates: Shop around for better rates on services such as insurance, utilities, and phone plans.
- Take on a side job: Consider taking on a side job or freelancing gig to increase your income.
- Negotiate a higher salary: Consider negotiating a higher salary at your current job or looking for a higher-paying job.
Creating a budget, cutting non-essential costs, comparing rates, taking on an extra job, or negotiating a better salary will give you additional funds for your mortgage payments.
Secure Your Future with Early Mortgage Repayment
Cutting down your mortgage quickly is no easy feat, but with the right strategy, you can save a great deal of money in interest and reduce the length of your loan. Consider the strategies presented when planning your mortgage repayment to ensure that every dollar you pay now will not accumulate any more interest in the long run. Taking control of your mortgage has rewards, so don't forget to take advantage of them!
