How to Pay off your Home Mortgage Sooner

Your house is an asset, as long as it does not have a mortgage attached to it. No matter how you slice it, a mortgage is a liability.

It does not matter how small your interest rate is either. When you amortize your mortgage interest over 15 or 30 years, you unusually end up paying back twice what your home is worth. Wouldn’t it make more sense to pay off that liability sooner than later, maximizing your profits when you sell? There are five ways to do just that.

1. Add to the monthly principal
Any amount you add to your monthly principal reduces the total amount of the loan. Allocating enough each month to the principal to equal one full payment per year reduces a 30-year note to a 21-year note. The more you add to the principal, the faster you reduce the balance.

2. Pay bi-weekly
Many mortgage companies offer a bi-weekly payment option. This option puts you ahead mathematically, because you are automatically paying one extra payment each year when you opt in. This is a popular option for budget challenged homeowners, who prefer splitting their mortgage payment in half, because these plans automatically deduct the partial payment every two weeks. In addition, homeowners can choose to have a specified amount added to the principal with each bi-weekly payment, also helping to reduce the payoff even faster.

3. Make one extra full payment each year
Making an extra payment in December or January of each year maximizes the interest you are able to deduct for the following tax year, and reduces your payoff by several years in the process. Just like with every other option, the more you put in to it, the more you get out of it.

4. Refinance
Refinancing to a lower interest rate but maintaining the same higher payment means paying off your mortgage faster and paying less interest to your bank when all is said and done. Ultimately, the amount of time it takes to pay off your liability depends on your new interest rate and your mortgage balance at the time of refinance.

5. Apply lump sum payments to your mortgage
If you receive a lump sum payment like an income tax refund, inheritance, bonus, commission or overtime, you can use that lump sum and apply it directly to your mortgage principal, significantly reducing your payoff and interest.

Paying interest on anything makes no sense, including the one thing meant to be your largest asset. Your money doesn’t work for you when you pay someone else for the privilege of using it. Pay off your mortgage and maximize your largest investment sooner than later.