You’ve dreamt about the day when you can make your last mortgage payment. Wouldn’t it be great if that day arrived sooner and – better yet – you had more wealth than you expected when that day finally comes?
Each time you make an extra payment towards the principal of your mortgage, you’re both reducing the amount of time it will take to pay off while, at the same time, building wealth for the future by avoiding unnecessary interest. Best of all, reaching your dream of being debt-free does not require drastic changes to your lifestyle. Here are three ways you can pay off your mortgage in half of the expected time.
Make Extra Mortgage Payments a Habit
One way to start making extra payments is by dividing your monthly principal and interest by 12 and adding that amount to your monthly payments. This will result in 13 payments or an “extra” one each year. However, depending on your situation you may feel making an extra payment each month, each quarter, each year, or simply whenever you can afford to. No matter how frequently you can afford to make these payments, any extra payment helps. It will shave interest and time off your mortgage.
How do you increase your likelihood of making extra payments? Make it a habit, of course!
According to research from the University College London, it takes an average of 66 days for a behavior to become automatic. And while it’s unlikely that you’ll want to make small, additional payments over the course of 66 days, you can still develop the habit of paying a little extra by giving yourself a visual representation.
For example, if your goal is to make an extra payment each month, you could mark the anticipated date of your payment on a calendar and mark each day leading up to it as you consciously save a little bit each day. Alternatively, you could insert a little bit of Monopoly money or another representative item into a piggy bank or empty coffee can each day so you can remain conscious of your daily efforts to save.
Whatever the method and whatever the amount, the point is to make additional payments a habit. Making these payments will not only save you years and wealth on your mortgage but it will also give you the daily peace of mind that comes with making progress towards your goals.
Apply Your Good Fortune to Your Mortgage
Whether you’ve received additional income from a tax refund, a raise, a bonus, or an odd job, apply those funds to the principal of your mortgage. For many of us, the beauty of applying these funds to the principal of your mortgage is that it allows you to shave years and interest off of your mortgage with money you were not anticipating in the first place. After all, it’s easier to utilize these funds when you know your budget does not depend on those funds in the first place. The reverse of this, of course, is not being able to predict if and when good fortune will make its way into our hands; however, when good fortune does arrive, it’s often worth it to invest in your long-term happiness.
Cut Expenses and Put the Savings Towards Your Mortgage
Is living a modest lifestyle today worth living the life of your dreams further down the road? Of course, no one can answer that question for you other than you; however, individuals who are serious about living a debt-free life may find that it’s worthwhile to switch to less expensive commodities, fewer services, and a more frugal lifestyle overall.
Keep in mind, cutting your living expenses does not mean you need to drastically change the way you live in order to start paying off your mortgage quicker. For some of us, it could simply mean switching one or two items in our grocery cart to a generic brand during our usual trip to the grocery store. You do not have to give up your lifestyle in order to pay off your mortgage early, but finding ways to save here and there certainly helps.
How Much Time and Money Will You Save?
If you have a $200,000 30-year home loan with an interest rate of 4%, you’ll end up spending $143,739 in unnecessary interest if you make the traditional 12 payments a year. Using the method of 13 monthly payments we discussed above would help you shave 4 years off of your mortgage and save you $21,458 in interest. Of course, you’ll see better results the more frequently you make payments and, in some cases, you’ll be able to pay your mortgage off in half of the time you expected.
Remember, each time you make an additional payment on the mortgage, the amount that is applied to your principal increases. In other words, it becomes easier and less stressful over time. You can pay off your mortgage and you will when you commit yourself to making additional payments. You’re invited to contact us at mySmartPay Wealth Solutions with any questions you may have. Thank you for reading and we look forward to your financial success!