Most people these days get 30 year mortgages, and it is crazy thing to see the total amount of the loan being double what you are borrowing when you actually pay off your house.
Therefore, paying off your mortgage faster essentially saves the borrower from having to pay such a monstrous amount of interest.
Anything can reduce the outstanding principle at any given point, either by making bigger payments from time to time or more frequent payments in addition to regularly scheduled. The goal is to accrue less interest in between payments, as well as reduce the total time during which interests are accrued.
You should really have your house in finanical order per the Dave Ramsey Total Money Makover baby steps including no other debt, retirement planning in place and an emergency fund. before you aggressively start paying off the mortgage.
Increase Monthly Payments
Increasing the amount you pay at originally scheduled payment points whenever you can is something very easy to implement with your lender.
Your extra mortgage payment amount would be applied towards further reducing your outstanding principleand thus a less amount of money would be accruing interest.
When we first had our mortgage I rounded up my mortgage payment to the number $100. So if my mortgage payment was $1235 I would pay $1300.
Another option is simply divide what extra you want to pay per year and ad that to your monthly mortgage payment.
Make sure you lender knows that the extra payment will go towards reducing the principle or otherwise they will put it towards your next payment. That doesn’t help you pay off the mortgage faster.
What can happen in some cases, is the extra amount you pay will go towards your next payment due rather than the principle. This doesn’t help you pay down your principle faster.
Change Your Mortgage to a Shorter Term Loan
If you can really commit to making increased payments on a regular basis, shortening a 30-year mortgage to a 15-year loan would also save you about half of the interest and probably is the fastest way you could pay off your mortgage. You should realy only do this is you have a large emergency fund or you can pay the mortgage only one income if you are a two income family. Personally, I have never felt comfortable enough to make this switch.
You could also pay extra in such a way that the payments you make would be what you would pay if you had a 15 year loan.
Use an online mortgage calculator to figure what your monthly mortgage would be if it were a 15 year rather than a 30 year and use that amount to pay monthly. You’ve basically just created a 15 year loan that gives you some cushion if some months you can’t make the higher payment, as you have the 30 year payment to fall back on.
Refinance to a Lower Interest Rate Mortgage
Interest Rates are a lot lower these days-think 2-3% We lowered our rate several years back and kept it to a 30 year mortgage our monthy payment was a lot lower but I still paid the old payment. You need to continue to pay the higher payment to pay off your loan faster. One important thing, do not add any credit card or car debt into the mortgage.