FINANCIAL WELLNESS

4 min read

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Jul 2022

4 Ways To Pay Off Your Mortgage Early

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WHAT YOU'LL LEARN

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The benefits of refinancing

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How windfall income can lead to an early repayment

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Why biweekly payments are a smart decision

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WHAT YOU'LL LEARN

check icon

The benefits of refinancing

check icon

How windfall income can lead to an early repayment

check icon

Why biweekly payments are a smart decision

Your home is likely the largest investment you’ll ever make. And as the days, months, and years go by since you were handed the keys to your place, it might seem like you’ll be paying off your mortgage for the rest of your life. Well, it doesn’t have to be that way.

There are many different viable options for paying off your mortgage sooner rather than later, but not every possibility will work for your specific financial situation. Check out our list of four ways to pay your mortgage’s entire principal (plus interest) faster to see if any option makes sense for you and your family.

Refinance to a Shorter Loan Term

One way to pay off your mortgage faster is to refinance your current loan to a shorter loan term. Refinancing is the process of paying off your existing mortgage and replacing it with another in order to save money or pay off your loan sooner. A lot of things can change about your financial situation over time, such as earning a raise, so refinancing your loan to one that better aligns with your current income, budget, and goals can be a great idea.

Refinancing from a 30-year to a 20- or 15-year may raise your monthly payment a few hundred dollars, but you’ll knock off thousands in interest over the life of the loan, and you won’t have to start over with another 30-year mortgage. It’s never too late to refinance, either No matter how long ago you agreed to your loan’s terms, you can still save money and time by refinancing.

You don’t have to refinance with the same lender, so do a little research on your other lending options before rushing into another contract with the same company. But most important of all, it’s a good idea to speak with your current lender to see if now is the right time to refinance given the current mortgage rates.

Windfall Income

Windfall income can be described as any substantial and unforeseen monetary gain. Receiving unexpected income is always exciting, but if the thought of paying a mortgage for 30 years or more does not match up with your goals, putting these funds toward your mortgage is a smart way to pay your loan faster.

Some examples of windfall income include:

  • Credit card cash-back rewards

  • Income tax refunds

  • Inheritance

  • Lawsuit settlements

  • Property sales

  • Raises

  • Work bonuses

Even winning the lottery would classify as a windfall income. These earnings are rare, but when they do come up, they make for an excellent short-term strategy for putting a considerable dent in your mortgage’s outstanding balance.

Biweekly Payments

Every month, you make a payment so you will one day reimburse your lender for the money you borrowed to purchase your home. But did you know some lenders will let you make two payments every month? Yes, they will let you switch your regular one-time monthly payment schedule to one with biweekly contributions.

The two payments must add up to the normal amount of money you pay back every month, but remember, every time you make a payment, any interest you’ve accrued will be paid off first. Paying every two weeks means there is less time for interest to accumulate.

Therefore, more of your money will go towards cutting down your principal balance than ever before. But as mentioned, not all lenders will accept biweekly payments. Ask your lender first before committing to the biweekly option.

Budget, Budget, Budget

You can also pay off your mortgage faster by simply paying extra toward your principal here and there or making an extra lump sum payment on your principal each year with funds you’ve saved by better budgeting. Most mortgages since 2014 do not come with prepayment penalties, so you don’t get charged for paying it off early.

Where can you find that extra money? Look for ways that might help you save more money every month that could go directly to your mortgage. For example, track your payments for a month to see exactly where all your money is going. Maybe you’re still paying for a gym membership in the city you just moved from, or maybe you’re spending more than you’d like to on fast food every week.

You could also sell any of your unnecessary or unwanted items lying around your home. There are so many online vending options to choose from with likely hundreds of interested local buyers, so that’s a phenomenal way to make a little extra money to go towards paying your mortgage.

Speak With a Mortgage Banker First

Paying off your loan faster will save you thousands of dollars in interest, but it’s not manageable for everyone. If you can only meet the minimum payments each month, that’s totally okay! Speak with your lender to discuss practical ways you could accelerate your repayment that makes sense for your situation.