Wondering how to pay off your mortgage faster? Here are 5 ways how
Your mortgage term might be over 25 years. But have you heard of how to pay off a mortgage faster, without penalty? Here are 5 ways you can do just that.
Your mortgage term might be over 25 years. But have you heard of how to pay off a mortgage faster, without penalty? Here are 5 ways you can do just that.
Buying a home is likely the single largest purchase you will ever make in your life. And for most people, a mortgage borrowed over a multi-date term will be what makes that possible.
It’s common for homeowners, especially first-time buyers, to obtain a mortgage on a 25-year term. It can feel hard to comprehend paying off something so expensive for so long (we’re talking decades here!).
It begs the question: How can I pay off a mortgage faster and without penalty?
Here’s the good news: we have five tips for you on how to pay off a mortgage faster. Spoiler alert: Our biggest tip of all is to connect with a credit union expert (more on that in a minute).
There are a few ways you can make paying off your mortgage seem like less of a life sentence and more of a life goal. And when you bank with a credit union, your wellbeing is always more important than profits.
When shopping for mortgages, you’ll want to consider two key elements: the size of your payments and the period over which you’ll be making them.
The longer the amortization period (the total length of time it takes to pay off your mortgage) the more interest you’ll owe on your mortgage (check out our article on amortization and interest article to learn more). By choosing a shorter amortization period, you could save thousands of dollars in interest.
The more you can put toward your down payment, the smaller the balance owing on your mortgage will be. And that means paying it off will be faster than you might have expected.
Starting out with a smaller mortgage will make your payments over a standard 25-year mortgage smaller and it might even give you some breathing room in your budget to opt for larger payments over a shorter amortization period. This means you could pay off your mortgage faster and pay less interest.
That sounds like a win-win to us, but this hinges on having a large down payment saved. Wondering how to plan for that? Credit union experts can help you figure this out.
HONEST TIP: Saving towards your first home
The First Home Savings Account is a great tool to save toward your first home. Wondering if you qualify? Our FHSA article has all the info you need to know.
Talk to your financial institution to see if you’re able to increase your mortgage payments beyond the minimum. Credit union experts, for example, will always listen and do what they can for members who are feeling the pinch on payments.
You may have to make some additional financial decisions to support this, like taking vacations closer to home for a few years or opting for a used car instead of the latest model, but your future mortgage-free self will thank you!
You’ll also pay less interest because those extra dollars will go toward paying down the principal amount sooner—and that means your overall mortgage will be paid down faster.
If you’re able to make accelerated payments, you can shave years off the life of your mortgage and save on interest, too. With a bi-weekly accelerated payment, your mortgage payment is divided into two and that amount is withdrawn every two weeks.
You’ll still make 26 payments per year, but it works out to be a little more each payment than with a standard bi-weekly payment. Similarly, if you wanted to do weekly accelerated payments (where your monthly payment is divided by four and you’ll still make 52 payments) each payment will be just a little extra than the standard monthly payment.
This may sound like a small difference, but you’ll notice a significant increase in the amount you pay monthly. We recommend connecting with your credit union expert to talk this through and see if it’s the right call for you.
Most mortgages allow you to make lump sum payments up to a certain amount without penalty. An unexpected tax return, holiday bonus, or other financial windfall could be put toward paying off your mortgage.
Make sure you talk to your financial expert to better understand what lump sum payment options your mortgage allows, and how to pay off a mortgage faster without penalty.
While it can be tempting to put everything you have toward paying off your mortgage faster, don’t forget about other important aspects of your financial health and wellbeing, like saving for retirement or an emergency, or even maintaining your social life.
Ultimately, the right way how to pay off a mortgage faster is about balance. Your mortgage is just one piece of your financial life. As much as you may need to adjust your expenses to pay for your mortgage, you want to avoid putting too much of your income toward your housing and risk becoming house poor. If you’re not sure how much of a payment you can afford, our mortgage payment calculator can help.
There’s no question that buying a home is a big step—and if it’s your first time, our guide to homebuying can help answer some of your questions.
Whether your dream home has gorgeous sunset views, a dog-friendly yard, or a huge garage for hobbies, your credit union is here to help you get there.
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