This Simple Move Could Help You Pay Off Your Mortgage Early -- and Reap Major Savings
Here's one relatively painless way to shed your mortgage quickly.
When you sign a mortgage, you commit to paying a certain amount of money every month for the duration of that loan. But that doesn't mean you have to stick to your monthly payment. Granted, you can't pay less than your monthly payment -- if you do, you might eventually lose your home. But you're generally allowed to make more than your monthly payment if you want to pay off your home loan ahead of schedule.
These days, most mortgages don't come with an early payoff penalty. That means if you're able to swing it, you could, for example, pay off a 30-year loan in just 25 years by pumping extra money into your loan as you see fit.
There are plenty of benefits to paying off a mortgage early. Not only can you shed your monthly payments sooner for a more flexible budget, but you can also save yourself money on interest over the course of your repayment period. And if your goal is to be mortgage free early, here's one easy way to accomplish it.
A simple trick to shake your mortgage debt
Most people make a single mortgage payment every month. But if you split your monthly mortgage payment into two and pay it every two weeks, you'll pay off your home sooner without feeling like you're sacrificing too much.
Say you normally make a monthly mortgage payment of $1,000. Using this trick, instead of paying that $1,000 once a month, you'd pay $500 every two weeks. But here's the key -- by making that payment every two weeks, you wind up making a $500 payment 26 times during the year. That's $13,000 a year in payments. By contrast, if you were to stick to your original payment schedule, you'd only end up paying $12,000 a year.
So how much money might you save by paying your mortgage every two weeks instead of once a month? Say you have a $100,000, 30-year fixed loan with an interest rate of 3%. If you were to stay on your original payment schedule, you'd wind up paying about $51,777 in interest over the life of your loan. But by paying every two weeks using the method above, you'd spend only $44,898 on interest. That's close to $6,900 in savings. Plus, by paying every two weeks instead of once a month, you'll be mortgage free several years earlier, because you'll end up shaving 43 months off of your repayment schedule.
Now, you don't have to use the pay-every-two-weeks method to knock out your mortgage early. You can also just randomly pay extra into your home loan when you can to achieve a similar goal. But if you know you want to be free of your mortgage ahead of schedule, then paying every two weeks is a good way to stay on track -- especially since it's a pretty easy thing to incorporate into your budget. And that way, you don't have to feel compelled to fork over every windfall you get to your lender.
A historic opportunity to potentially save thousands on your mortgage
Chances are, interest rates won't stay put at multi-decade lows for much longer. That's why taking action today is crucial, whether you're wanting to refinance and cut your mortgage payment or you're ready to pull the trigger on a new home purchase.
We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.