Many people want to pay off the mortgage on their house early. They want the flexibility to have less money going out the door every month. They want to be debt-free and not have to worry about living paycheck to paycheck. Is this you? Maybe your skeptical and don’t think it is that big of a deal to pay it off faster. Well, let’s start with an example. Let’s say you buy a house and get a 30 year mortgage for $200,000 at 3.8%. If you kept the loan to the end of the term you would have paid $135,489.29 in interest. This means the total amount you paid for the house would be $335,489.29.
If you bought a house and got a 15 year mortgage instead at 3.11%, you would pay only $50,518.36 in interest. Bringing your new total to $250,518.36. This is a difference of $84,970.93! I don’t know about you but I am interested in saving that kind of money.
Create a Financial Gameplan
Track your expenses on a monthly basis and determine what your surplus is. That is, after all your bills are paid and investments are funded, how much extra money do you have left over each month.
Increase Your Monthly Payment
Calculate what a 15 year payment would be by going to Bankrate.com. Then if you have enough surplus, begin paying that payment toward your mortgage each month. This way you avoid all of the fees and hassle that would be involved with refinancing.
Decrease Your Expenses
If you have little-to-no surplus, go through you financial gameplan (budget) line by line. Ask yourself, ‘how can I spend less in this category?’ By doing this you could free up extra cash to pay down your mortgage faster.
Refinance to a 15 Year Fixed
If you currently have a 30 year mortgage at an interest rate above 5%, consider refinancing to a 15 year fixed. The current average national rate is 3.11% on a 15 year (as of May of 2012). This could save you a few thousand dollars a year in interest just by making this move.
Make One Extra Payment Per Year
If you want to wear the minimum amount of flair, you can make one extra payment per year. In the 30 year scenario above, you would pay your home off 4 years sooner.
Do you have a plan to pay down your mortgage early? What is it?