5 tips for paying off your mortgage faster

After you purchase a home, as exciting as it is to own a new property, you are also the owner of a new mortgage. Although it’s an important part of homeownership, mortgages are lengthy in time and they’re pricey. You might be wondering if there are ways to pay off your mortgage faster in order to own your home free and clear. Paying off your mortgage quicker is certainly possible, but the route you take to do so depends on your situation. Things like your mortgage type, interest rate, and amortization period will determine where you stand. Read on to learn five tips for paying off your mortgage faster!

#1 Shorten your amortization period

Your amortization period is the length of your mortgage loan, meaning the length of time until your mortgage is paid off. Mortgage loans are generally up to 25 years in length. The longer your amortization period, the more money you will pay over time, since each payment comes with interest. If you want to pay off your mortgage quicker, you may be able to shorten your amortization period. Shaving a few years off your loan will help you build equity faster while saving you money in interest. You may need to refinance your mortgage to change your amortization schedule. If this is something you’d like to consider, you should contact a broker to help you start this process.

#2 Make payments more often

Another way you can go about paying off your mortgage quicker is to contribute to your payments more often. Mortgage contracts include monthly payments with a standard interest rate and fee. However, you might find you have the financial freedom to pay more than what’s required. If you’re able, you can look into making payments twice a month, for example. By doubling the number of your monthly payments, you’ll be making faster progress on repaying your loan, helping you toward your goal of owning your home in a shorter time frame.

#3 Increase your payment amount

Similarly, you can think about increasing your overall payment amount each month. Doubling your payments may not be in the cards for you, but even if you can contribute an extra $50 each month, this will make a big difference over time. An extra $600 each year adds up and you will end up paying off your mortgage at least a couple years earlier than you originally planned, again, saving you money on interest. Every contribution you make will put you one step closer to complete homeownership.

#4 Take advantage of extra money

Use any extra funds you might come across to help with paying off your mortgage faster. Whether this is a nice tax return, a work bonus, or extra income from a side job, sometimes we end up with more money than we expected to have. You can take advantage of this by putting it toward your mortgage loan, or setting it aside so you can make lump sum contributions. Any money you allocate to paying off your mortgage will help you do so faster, and save you money in interest in the long run.

#5 Watch out for prepayment penalties

One of the most important things to remember about paying off your mortgage is that you may face some limitations in terms of paying it off faster. Depending on your mortgage type, you will have different levels of prepayment options. Variable-rate mortgage holders tend to have lots of flexibility with increasing payments or frequency, or refinancing to a lower term. Fixed-rate mortgage holders have stricter rules regarding their payment flexibility. If a person with a fixed rate pays more than the set amount, or pays more often, they can face a prepayment penalty. This penalty amounts to the higher of either three months of interest, or an interest rate differential (IRD). An IRD is the difference between the interest rates at the time you signed your mortgage contract and today’s current rates. Variable mortgage holders have much more flexibility with prepayments, and are usually granted prepayment privileges. Talk to a broker about your situation before you try to make extra payments.

Paying off your mortgage quicker is a great idea if you’re able to do so. You will be able to build home equity faster, save money on interest, and be a free home owner sooner than you thought. Before you begin planning, however, we recommend chatting with a mortgage broker. A broker will help you understand your options and will ensure you won’t be dealing with any unexpected costs by paying off your mortgage sooner. It never hurts to get a broker’s opinion!

If you have any questions about your mortgage, get in touch with us at Clinton Wilkins Mortgage Team! You can call us at (902) 482-2770 or contact us here.