Monday , 24 September 2018

Pay Off Your Mortgage In Half The Time! Here’s How

…In this article I highlight 10 ways to pay off your house early. You can pick out the one that suits you real-estate-9best, or find a way to combine multiple tips to pay off your mortgage in as little as half the time! Imagine not having a mortgage payment any longer. What would that enable you to do?…What are you waiting for?

The original article has been edited here for length (…) and clarity ([ ]) by munKNEE.com – A Site For Sore Eyes & Inquisitive Minds – to provide a fast & easy read.

Let’s get started learning about these little known ways to pay off your mortgage fast so you can use your extra money for other things!

#1. Use Tax Refunds

According to the IRS, the average refund for 2016 was a whopping $3,053!…Let’s say you just bought a house and took out a loan for $200,000 at 5% interest for 30 years. You pay the balance due every month except for May, when you make an additional one-time extra payment of $3,000 which is your tax refund. What effect does this have?

  • Do this for just 5 years, you will shave 4 years off your mortgage and save almost $38,000 in interest!
  • Do this for 10 years and you knock off close to 7 years and save $58,000 in interest!
  • Do this for the entire length of your mortgage and you knock off 10 years and save close to $70,000 in interest!

I know it can be tempting to spend your tax refund on something else, but if you can put all of it, or even a good chunk of it, towards your mortgage you will save a ton of money.

#2. Bi-Weekly Mortgage Payment

The next mortgage pay-off trick is to create a bi-weekly mortgage payment system. A bi-weekly system takes your monthly payment and cuts it in half, so that you pay every other week, or twice a month.

The idea behind this is that there are 26 weeks in a year, so instead of making the normal 12 monthly payments, you are actually making 13, since 26 half mortgage payments equals 13 full mortgage payments. You end up making one extra payment each year.

Some banks offer to do this for you but they often charge a set up fee and some even charge ongoing fees. You can skip the fees and do this yourself… Take one monthly payment and divide it by 12. Then pay this amount as extra principal each month for the year. Let’s use the example above of a $200,000 mortgage at 5% for 30 years.

  • Your monthly mortgage payment is $1,074.
  • If you divide this by 12, you get $89.50.
  • Each month you are to pay $1,163.50 towards your mortgage.
  • This total is your regular monthly payment of $1,074 and the additional $89.50.
  • On your remittance slip you send along with your check, there is usually a line for an additional principal payment. Put the extra $89.50 on this line.
  • If you pay online, there is usually a place for noting extra principal as well.

Come the end of the year, you will have made one extra mortgage payment, which is the same as setting up a bi-weekly mortgage payment.

By following this technique, you will knock off close to 5 years on your mortgage and will save over $33,000 in interest.

#3. Use Credit Card Rewards

Wouldn’t it be great if you could use credit card rewards to pay off your mortgage faster? You can!

  • Wells Fargo…[for example, offers a] Home Rebate Card [with which] you earn 5% cash back on gas, groceries and drugstore purchases and 1% on everything else for the first six months [and] after the six months are up, you earn a flat 1% on purchases… There is no annual fee and the cash back is automatically transferred to your mortgage principal.
  • American Express offers a Blue Cash Card with which you earn 6% and 3% cash back, respectively, on groceries and gas on this card since you earn 6% and 3% cash back respectively.
    • Open up a Capital One 360 savings account (if you fund your new account with $250, they will give you $25!).
    • Redeem the cash back on the Amex card for a statement credit.
    • Transfer that amount from your checking account to your Capital One 360 savings account.
    • At the end of the year use this money to make an extra mortgage payment…
    • If you spend $150 a week on groceries and $50 a week in gas, you would earn $625 a year in cash back. Apply this to your mortgage once a year and you knock off over 3 years and save more than $20,000 in interest!

Of course, you don’t want to go into debt when doing this, otherwise the point of paying off your mortgage early is lost so make sure you are smart about how much you spend when taking advantage of this mortgage pay off trick.

#4. Pay Extra At The Start

…When you first start making payments on your mortgage, you pay mostly interest. As you move towards the end of your mortgage, you pay mainly principal. The reason for this is that banks want their money back first but, by being smart and paying extra at the start of your mortgage, you can save yourself thousands of dollars and pay off your mortgage faster. Using the same example from earlier ($200,000 loan at 5% for 30 years), if you were to mak

  • an extra $100 payment each month for 5 years it would shave off close 2 years of your mortgage and would save you close to $17,000 in interest.
  • a $200 extra payment towards your monthly mortgage for the next 5 years would  knock off 2 years of your mortgage and save you over $31,000 in interest.
  • a regular extra $200 payment towards your mortgage would enable you to pay it off your mortgage 9 years early and save you $61,000 in interest.

#5. Refinance

When you refinance, you either get a lower interest rate or you shorten the term of your mortgage. Doing this will help you to pay off your mortgage faster and save you money. In some cases, when interest rates drop by a good amount, you can shorten your term and interest rate, and still have the same monthly payment…The amount of interest you save and how quickly you can pay off your mortgage depends on your current balance and interest rate and what you refinance for in terms of interest rate and length of the loan.

  • The main downside to refinancing is the closing costs. Typically they run around $3,000. You could roll them into your new mortgage, but then you are paying interest on that money as well. You are better off just paying the closing costs out of your pocket and not rolling them into the refinance.
  • Some banks will offer no closing cost refinancing which can be a great way to save some money. Just be sure to compare their rate to another bank to be certain they aren’t charging you a higher interest rate.

#6. Pretend To Refinance

Because of the work involved with refinancing and the closing costs involved, there is another option to save money and pay off your mortgage fast. It’s called a fake refinance. Simply figure out how much a monthly payment would be on a refinance…then commit to making that payment every month without actually spending the money to refinance. For example, let’s use the same numbers, a $200,000 mortgage for 30 years at 5%.

  • refinance of $200,000 at 3.25% for 15 years would have monthly payments of $1,400. Right now you are paying $1,074 per month. If you don’t refinance and are 5 years into your mortgage and start paying $1,400 each month, you will pay off your mortgage 10 years sooner and save close to $55,000 in interest charges. That is some serious savings!
  • The only catch here is that you have to be committed to paying the fake refinance amount and not just your standard payment.

#7. Round Up Payments

Rounding up your payment is also a great little known way to pay off your mortgage. As I mentioned, your current monthly payment is $1,074. What if you rounded up to $1,100 per month? That is just $26 more each month. While you would only knock 2 years off of your mortgage, you would save over $10,000 in interest charges.

I know that a couple [of] dollars doesn’t sound like much, but it makes a difference. On our mortgage, if I pay just $6.85 extra per month, I save over $3,300 in interest over the life of the loan so don’t think a couple extra dollars isn’t worth it. Put anything extra you can towards your mortgage each month.

To help with this, you could use a free app. Qapital rounds up your purchases to the next dollar and transfers the money from your checking account to a savings account. You then can put that money towards anything you want. In this case, you would make an extra mortgage payment. I’ve been using Qapital for close to a year and have saved over $750! When you open your free account, they will give you $5.

How To Pay Off Your Mortgage In Half The Time

What if we combined some of these little known mortgage pay off tricks? Could we cut our 30 year mortgage in half? Which two tips sound the most reasonable to use?

Let’s combine rounding up along with paying extra at the start of the mortgage. These allow for the most flexibility and will show us what a little extra payment does in the long run.

#8. Paying Extra And Rounding Up

For this example, we will round up $26 each month, plus we will pay an additional $125 each month so our new monthly payment is $1,225 per month. With this method, you would knock off about 8 years and save around $50,000 in interest. Not bad for a small sacrifice, but we weren’t able to cut a 30 year mortgage in half. Let’s try another combination.

#9. Bi-Weekly And Tax Refund

While the above option is great, let’s combine our tax refund and a bi-weekly payment. Simply pay $72 more each month and use your entire tax refund to pay off the mortgage early. If you combine both options, you will knock off 12 years and save around $81,000 in interest. The only catch here is that a $3,000 tax refund each year is not a given. It could change which could change your mortgage pay off as well.

This gets you closer, but you still aren’t able to pay off your mortgage in half the time.

#10. The Fastest Way To Pay Off 30 Year Mortgage

Finally, here is the fastest way to pay off your 30 year mortgage. In fact, it will allow you to cut a 30 year mortgage in half. This is for people who want to destroy their mortgage as quickly as possible. To do so, we will use the following approach.

  • Use our tax refund. We will assume the average refund of $3,000 but only use $2,000 so you can do what you want with the rest. This will also help us in the coming years since a tax refund can change depending on your future financial situation.
  • Open cash back credit card. We will assume $1,000 in rewards each year to be put towards the mortgage.
  • Round up. We will use Qapital to round up our purchases and transfer that money to our mortgage annually. We will assume $750 in annual roundups.
  • Pay extra. Finally, we will put an extra $150 a month towards the mortgage

What is the result of all of this? You will pay off your mortgage 15 years early and save over $98,000 in interest. This is the best way to pay off your mortgage early.

Of this extra amount we are paying each month, you only need to come up with $150. This is because the credit card cash back and the round ups from Qapital are from your spending. Surely you can come up with an extra $150 a month!…

Final Thoughts

There you have it! The more money you can throw at your monthly mortgage payment, the quicker you will pay it off but, even then, it will take time. A mortgage balance is a large amount of money and you can’t pay it off overnight but don’t let this deter you. Keep your eye on the goal of paying off your mortgage. Imagine what it would feel like to not have that monthly payment any longer and what you could do with the money instead.

Any extra amount you can pay each month not only shaves off the time you have to pay, but it also saves you money in interest charges along the way – and that interest savings really adds up!

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