Refinance to a shorter term mortgage
By refinancing a standard 30-year mortgage to a 15-year mortgage is a sure fire way to pay off your mortgage in half the time. By refinancing to the shorter term you will, naturally, make larger payments, but you will also typically pay a substantially lower interest rate.
Of course, you will be locked into these higher monthly payments and should make sure that you are in a financial position to shoulder the extra burden for the length of the mortgage. If you have any doubts, some of the less aggressive tips that follow may be a better option.
- Commit to paying a little extra each month
Adding a little bit to your mortgage payment each month can go a surprisingly long way to cutting down on the time and interest of your mortgage. Because whatever you pay extra each month goes toward the principal of the loan, you are consistently cutting down the amount interest you pay.
There are, however, a couple of things to keep in mind when using this technique. One, make sure to read your contract to make sure there are no prepayment penalties. And, two, make sure that the extra money you are paying actually goes toward the principal of the loan and is not simply being applied to future payments.
- Refinance your loan and keep the same monthly payment
Typically when you refinance your home loan, you can negotiate a better interest rate and lower your monthly payment. But if you refinance to that lower interest rate and keep the same monthly payment, the difference will go to the principal of the loan, again shortening the life of the loan and saving you money on interest paid.
- Apply cash windfalls to your mortgage
Just as adding to your monthly payments reduces the principal of your loan and ultimately the interest you pay, making lump sums toward the principal of your loan when you get a nice influx of cash can shorten the life of your loan and save you a good amount of money in the long run.
Consider applying work bonuses and income tax refunds toward your home mortgage.
