7 Tips to Help You Pay Your Mortgage Faster

Real Estate Agent with RE/MAX Fort McMurray
7 Tips to Help You Pay Your Mortgage Faster and Save You Thousands of Dollars.
Small Pic

There's a major sense of accomplishment and peace of mind of owning your home outright. Paying off your mortgage sooner can make sound financial sense by saving you thousands of dollars in interest costs. Learning how to save on your mortgage can slice years off your loan. Finding out if you can save on your mortgage payments won't cost you anything, and you will discover whether you have the best loan available for your individual circumstances.

1- Shop around for the best mortgage possible with your credit score. When a mortgage company has a small overhead cost to stay in business it typically means that they will not charge you unreasonable ongoing service fees. Make sure you know the fees charged by your mortgage company before you sign on a loan.

2- Select weekly or bi-weekly mortgage payments. A bi-weekly mortgage payment means you're making 26 half-payments instead of 12 monthly payments. But keep in mind that unless your initial mortgage is set up as bi-weekly, some lenders charge an upfront fee of $300-$400 to make bi-weekly payments, and even though you're making a payment every two weeks, the lender only applies it once a month.

If you make bi-weekly payments of $415 instead of monthly payments of $830, you could save almost $27,000 in interest over the entire amortization period of your mortgage, and you could own your home about 4-1/2 years sooner.

3- Prepay a little extra every month, or any time during the term of your mortgage. Increasing your payment by even a few dollars each month will pay down your principal amount faster. It is a good idea to pay 10-15% more each month. This amount shouldn't put too much extra burden on you, and it will help to pay off your mortgage much faster. For example, if you increased your mortgage payments by just $170 from $830 to $1,000, you could save almost $48,000 in interest over the entire amortization period of your mortgage, and you could own your home about 8 years sooner.

4. Make an annual lump sum payment. Use your tax refund, work bonus or any extra money you can save and apply it directly to your principal amount. Check your mortgage documents to find out how often you can prepay and in what amount. Many loans don't prohibit you from doing this, however the lender may have parameters on how many extra payments you can make. Ask this question when shopping for a mortgage loan.

5. Pay as much as you can at renewal time. Most mortgages become open at renewal. This means you can pay as much as you want on your mortgage. If you chose a 5-year, fixed-rate term, and made a $10,000 lump-sum payment every time your mortgage came up for renewal, you would save about $37,481 in interest over the entire amortization period of your mortgage.

6. Red flag your extra payments. Always check your mortgage statement to make sure that any extra payments you made are being counted against the principal and that your bank has accurately documented your payments. Make the extra principal payments on a separate cheque and make a note on the memo line stating that the payment should be applied to principal reduction only. At tax time, tally up those payments and make sure they've been applied correctly.

7. Stay informed. Once you have a mortgage, aside from making the payments, it's easy to forget about it altogether. By keeping up-to-date on interest rates and new products could save you money. You may want to shop for another product that better suits your needs. For example, to qualify for a mortgage, you may have started out with a lower-rate adjustable rate mortgage, but you want to switch to a more long-term affordable fixed-rate mortgage later.

When You Should Hold Off on Paying Your Mortgage Faster?

While paying down a mortgage quickly may be a wise decision for many homeowners, it's not for everyone. For example, you may want to switch to investing in mutual funds when yields return 10-12% annually. For most people though, this is not a mathematical issue but one of security, as they just want that mortgage paid off. For people who are very debt-averse, the peace of mind of paying off the house more quickly is worth the price.

Secondly, if you are planning on moving soon, you may want to hold off investing money into your existing home as you may need the money for a down-payment, closing costs or buying new furniture for your new home.

As you can see, with a little research, you could save on your mortgage. The truth is: the banks won't tell you how to save money on your mortgage as they want to make the interest on the money that they have loaned to you. If they were to help you save money, they would lose money and their profits would stagnate. Make sure that if you implement changes to save on your mortgage it is the right decision for you.

Comments (4)

Randall Schrader
Competitive Insurance of Dundee - Dundee, FL

The extra check for principle only is a great idea!  Mark it in the memo section too.

Aug 24, 2008 01:48 AM
Ellie McIntire
Ellicott City Clarksville Howard County Maryland Real Estate - Ellicott City, MD
Luxury service in Central Maryland

Great post Pat. I have over paid my mortgage since owning my home. It just makes good sense. I will keep this info for my clients.

Aug 24, 2008 01:49 AM
Roger Billeci
Real Estate Investments - PropertyQwest.com - Alamo, CA
Outpacing fiat currency with Real Estate!

Hi Pat ... thank you for your thoughts ... as you've stated at the end of your post, I don't believe it's always the right move to pay down your mortgage.  I caveat this by saying that everyone's situation is different and one should never just take anyone's advice (mine included) without a thorough examination of the situation and related circumstances.

In my opinion, it's more important to look at all of the debt that you carry to determine where a payment of cash is going to save you the most money.  If you owe 10k on credit card type debt @ 15% you wouldn't necessary want to pay down a mortgage that you have secured at 7%.  Additionally, by paying off the credit card type debt, you will be simultaneously working towards improving your credit which will help you lock better interest rates on future debt that you may need to secure.  Furthermore, in most instances, you can't take a tax deduction on personal credit card type debt while you will receive (again in most instances) a tax benefit writing off mortgage interest.

Pat, as you have stated, the same goes for those who choose not to pay down their mortgage because they take the money that they would put towards the mortgage debt reduction into a mutual fund type investment that yields stronger returns.

Again, thank you for your thoughts!

Aug 24, 2008 02:11 AM
Hope Goss
Ventura Property Shoppe - Ventura, CA
Ventura Real Estate

great ideas for anyone that has a little extra cash each month.  Wish I was once of them!

Aug 24, 2008 02:33 AM