After the initial high of being a new homeowner wears off, and you take a closer look at your mortgage payment, it can be shocking to see just how much of your monthly payment goes towards interest. In the beginning years of a mortgage only a small portion of your payment actually goes towards principal. This can often be a big factor in the decision to pay off your mortgage more quickly, because who wants to end up paying twice as much for their home due to interest?
There are several benefits to paying off your mortgage in a shorter amount of time than what is outlined in your loan. By paying it off earlier you can experience a feeling of financial security because it’s usually a large portion of your monthly bills, and if anything were to ever happen you still have a place to live or an asset that you can take advantage of. There’s also the obvious benefit of having paid much less in interest over time, sometimes tens of thousands of dollars! Paying off your mortgage early may seem like an impossible task, but there are many things you can do to reach this goal.
Eliminate Other Debt
If you have other debt, it can be helpful to focus on paying it all off first, then moving on to paying off your mortgage. It doesn’t make sense to pay more towards your mortgage when you have credit cards and student loans that are also earning interest. By starting with the smallest amount of debt and working your way up, you’ll slowly have more free cash to allot towards your bigger ticket debts.
Ensure That You’re Financially Secure
Before you start throwing money at your mortgage, it’s important to make sure that you aren’t opening yourself up to unnecessary risk. Prior to even thinking about paying more on your mortgage, you should ensure that you have a full emergency fund (typically 3-6 months of living expenses) so that if anything comes up you aren’t left scrambling. It would be foolish to rack up credit card debt because you’ve sunk all of your money into extra mortgage payments. If you’re committed to paying off your mortgage, it can be useful to find other places to cut expenses first, such as downgrading your cable package. This way your monthly expenses aren’t too high for you to handle should something else come up.
Increase Your Minimum Payment
When you’re ready to start paying more towards the principal on your mortgage there are a few different strategies you can use. Keep in mind that anything you pay in addition to your regular monthly payments will go entirely towards the principal balance, so every little bit counts.
You can start with something as simple as rounding up your mortgage payment, which can add up to hundreds of dollars a year. As time goes on you may be able to afford a larger payment, and can begin paying more each month. Or, you can commit to pay a set amount over the minimum payment each month. Starting with as little as $100 can take years and thousands of dollars off of your total mortgage. As you pay off other debt or begin to earn more as your career progresses, you will likely have more available funds to put towards principal.
Paying off your mortgage early can give you an amazing feeling of accomplishment, not to mention the peace of mind that comes with saving yourself thousands of dollars. That feeling can make small sacrifices totally worth it in the long run.