Paying your home loan off faster can give you the financial stability you need in your life. You also save money since you won’t have to pay as much interest. However, knowing where to start when trying to pay off your mortgage can be difficult.
We’ve gathered these seven essential tips for repaying your home loan faster. You’ll want to start using them as soon as you can. Let’s begin!
1. Consider Refinancing
First, you’ll want to consider refinancing your home loan. When interest rates are down, you can get a better loan, making it easier for you to pay it off faster. The lower the interest, the better!
You can also reduce the loan term, which means you have to pay it off faster. While you will put more money towards the monthly bill, you won’t spend nearly as much throughout the loan. Plus, you’ll be mortgage free in a fraction of the time.
However, you must ensure you can handle the shorter loan term financially. Since you need to pay more, you must know ahead of time that you can consistently afford it. Overall, refinancing is an excellent option for many people to pay off their home loans quicker.
2. Make One Extra Payment Every Year
Next, you can make a single extra mortgage payment each year. Just one additional payment can reduce your loan term drastically. You’ll want to ensure there aren’t any prepayment penalties associated with your mortgage first.
You don’t have to cover the extra payment all at once either. Instead, calculate 1/12th of your mortgage payment, then add that amount to every payment. Let’s work on an example where you pay $840 each month on your home loan:
- $840 / 12 = $70
- $840 + $70 = $910
In this case, simply adding $70 to your mortgage every month means you make an additional payment each year- speeding up the term of your loan! You can also save on interest.
3. Make Extra Payments When You Can
If you can’t add more to each monthly payment, you’ll still want to pay more on your home whenever possible. It’s also good to tell your lender that you want these extra payments to go on the principle amount- not on your interest.
Making extra payments is especially important when the interest is at its highest at the beginning of the loan term. During this time, most of your monthly bills go to paying down the compounding interest, making the loan take longer for you to pay it off.
Many people make extra payments every few months. However, you’ll want to do this whenever you can! You don’t want to drain your bank accounts, but setting aside as much money as possible for your home is essential.
You can also consider using the following towards your loan:
- Money received as a gift
- Yearly tax refunds
- Bonuses from work
As mentioned above, making one extra payment each year can significantly reduce the term of your loan. But, if you can make more than a single payment, you’ll pay off your mortgage in no time!
4. Try Slowing Increasing How Much You Pay
If you’re unsure of your finances, you won’t feel comfortable jumping right into paying a lot at once- that’s okay! Instead, slowly increase the amount you put towards your mortgage each month.
A good tip is to use the “dollar-a-month” plan. This plan has you increase your monthly payment by a single dollar over time. So, if your mortgage is $800, you start with the first payment. Then, you add another dollar the following month, paying $801.
As you continue paying each month, you’ll eventually discover where your finances feel the most comfortable. You can stop adding more at that point and stick with keeping your additional payments consistent.
This method is great because you slowly discover how much you can afford to pay without breaking the bank and stressing yourself out. Plus, you still get to pay off your home loan faster. If adding a single dollar is too slow, you can try this method by adding $5 or $10 monthly instead.
5. Remove High-Interest Debts First
You must also get rid of any high-interest debts you have first. If you have any credit cards, you’ll want to pay those off before you work on your home loan. High-interest debts eat your money, making it harder to pay off your home.
Many people recommend tackling your credit card debts first. So, only make the minimum payment on your home while working on them. After you get rid of your high-interest debt, you can put the money you freed up towards your home loan without worry.
6. Earn a Side Income
Earning another income to put towards your home loan can help a lot. You have plenty of options too:
- Work for a rideshare app
- Deliver for a food app
- Rent out a spare room
- Get a part-time job
- Pet or babysit
- Freelance online
- Start an online store
This option is best if you have free time but need more money. There are plenty of ways to earn a side income, so you’re sure to find something you enjoy.
7. Prioritize Your Home Loan
You’ll want to sit down and work out a new monthly budget for yourself. You can spend less on things that aren’t essential and put that towards your home loan instead. Many people are surprised at what they spend their money on when they start tracking it!
Make sure to prioritize paying off your home loan whenever possible. Keeping this goal in mind will help you pay it off quickly.
Remember the Benefits!
Paying off your home loan faster is hard, but you shouldn’t give up. There are several benefits you’ll want to keep in mind. You’ll finally be free from your mortgage, so you can put the money that would normally go towards your monthly payments somewhere more important.
To summarize, you can use plenty of tips to pay off your home loan more quickly. Give the ones listed here a try!