What would life be like without a mortgage? Imagine if all that money you pay each month to the bank went instead to your very own pocket. That sounds pretty nice, doesn’t it?
That can happen to you if you commit to paying off your mortgage early!! We are going to show you the benefits of paying extra on your mortgage each month.
When we bought our first house we knew we had to plan ahead for it. We spent a year saving and planning for the biggest purchase of our lives. One of the things we knew we wanted to do was set a limit for our house buying budget. We set that upper limit at $220K and away we went looking at houses.
We have all seen House Hunters on HGTV and we know that the Realtors like to show houses outside your price range. We always said we’d never fall for that trick…until we did.
We found the perfect house that had everything we could ever want but only one problem, it was $240,000!! That’s $20k over the top end of our budget. The worst part was that we actually talked ourselves into putting an offer on it.
Who would ever do that? Apparently, we would, along with a host of other people on House Hunters. Looking back it was really a dumb decision but we talked ourselves into it knowing that we could afford the mortgage at that price point. We could have paid that much, we would just have been house broke. Luckily they passed on our offer.
A week later the perfect house for us came on the market at $200k and we jumped all over it. We came in with a strong offer and the sellers accepted. The next thing we know we are signing on the dotted line for the most expensive thing we have ever bought.
This house continues to be expensive, in a good way, and we love it. (Check out our DIY Page to see all the work we have done)
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Why Buy a Cheaper House
So the big question is, if we knew we could afford a house at $240K why did we limit ourselves to houses under $220K? Well, the answer to that is so we could pay the house off faster!! That extra money we would have been forced to pay on the higher mortgage is now voluntarily paid each month.
Let’s look at the advantages of keeping your mortgage payment within your means. Using real-world examples…our house… we’ll show you why it was important for you to pay off your house quick.
The Benefits of Paying Extra
Our monthly Mortgage payment is about $1,150. On a 30 year mortgage at our current interest rate, we would pay about $142,000 in interest on the loan. That means on a $200k house we would pay a total of $342,000 between Principal and Interest!!
Because we bought a house well within our means, we are able to pay a couple hundred extra dollars each month towards the mortgage.
Paying an extra $200 per month reduces the total amount of interest we pay by almost $42,000!! Doesn’t saving $42,000 sound nice? We think it sounds great! By paying an extra $200 per month we also reduce the time to pay off the mortgage by just over 8 years. Even paying an extra $50 per month would result in paying nearly $14,000 less in interest and pay it off almost 3 years faster. Every little bit counts!
Tips to Pay Off Your Mortgage Fast
Now that we have covered the advantages of paying off your mortgage early, let’s talk about ways to make that happen. Here are 5 ways to help you pay off your mortgage quickly and save you a lot of money.
1. Bi-Weekly Payments
If you have the option to make bi-weekly mortgage payments instead of one monthly payment, take it. Take it and run because this is going to save you a lot of money. By choosing to make bi-weekly payments you end up paying one extra mortgage payment per year. This will help reduce the amount of interest you pay and the time it takes to pay off the mortgage.
One thing to look for when choosing to make bi-weekly payments is to make sure that your bank will immediately credit the first payment towards the principal on your loan. Some banks wait to credit the first payment until the second payment is received. If this is the case you won’t receive the full benefits of bi-weekly payments.
If you don’t have a lot of extra money left over each month this is a way to pay a little extra without breaking the bank. Take whatever your mortgage payment is each month and round up to the next even $100.
Example: our mortgage is $1,150 per month we would round up to $1,200. That extra little bit of money will add up over the life of your loan.
#3 Use Bonuses Wisely
If you are fortunate enough to receive an annual bonus or even if you receive a spot bonus at work, take that money and put it down on your house. Heck, in April when we all do our taxes right at the deadline, if you end up with a refund put that money down on your house as well. Any extra payments you make will reduce the amount of interest you pay and the time to pay off your house.
#4 Drive Old Cars
One way to save a little extra money is to drive old crappy cars. Once your cars are paid off you can use all that extra money towards paying off the house. If you currently have a $200 per month car payment you should consider selling it and getting a car that you can pay cash for.
That extra $200 per month adds up to $2400 over the course of a year.
#5 Refinance Your Loan
Refinancing your loan is an option that could save you money in the long run. If you are able to refinance your loan for a lower interest rate it could save you money. If you are able to refinance to a shorter mortgage term then you’ll pay off your mortgage early but your payments will be higher.
Shorter mortgage terms generally have lower interest rates as well. Make sure if you refinance to a shorter mortgage term you can afford the higher payments. With refinancing there will be fees associated as you have to apply, get an appraisal, and pay closing costs.
I personally would use this as a last resort due to the complexity of refinancing. It would be easier to just pretend you refinanced and pay more each month.
Paying off your mortgage early can seem like a daunting task because we are talking about many years down the road. With a little determination and focus, you can make it happen though. Just think of how nice it will be when you make that last mortgage payment.
You’ll have extra money to travel, save for retirement, or buy yourself something nice because you just paid off a freaking house! You deserve a reward!
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Are you trying to pay off your mortgage? What other tips do you have for us?
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