When you buy a home, you’re likely making the biggest purchase you’ll ever complete. If you’re like most Americans, you had to borrow money in the form of a mortgage to buy your home. Thanks to interest charges, you could end up paying hundreds of thousands more than you originally borrowed over the length of your repayment.
According to the Federal Housing Finance Agency, the size of the average mortgage in the United States is $312,900. If you had a 30-year mortgage at 4.49% — the national average for interest rates — you’d pay a total of $570,081.49 by the end of your repayment term. Interest would cost you over a quarter million dollars.
Paying off your mortgage early can help you save money and get out of debt faster. Find out how you can accelerate repayment and what you should consider before paying off your mortgage ahead of schedule.
What to consider before you pay off your mortgage early
The biggest thing to consider before you try to pay off your mortgage early, is your other finances. Here are a couple things you should have in place:
- Emergency fund: Make sure you have at least $1,000 set aside for emergencies to start. Eventually, though, you should aim to have three to six months worth of expenses saved up.
- 401(k): Make sure you’re contributing something to your retirement fund. You should always take advantage of any employer matching for your 401(k) if available, too, otherwise you’ll lose out on that free money.
Once you have these funds in order and are contributing regularly, you can focus your efforts on your biggest debt: your mortgage.
5 ways to pay off your mortgage faster
When it comes to paying off your mortgage early, there’s no one-size-fits-all approach. You have to do what works for you and your finances. Here are five different ways you can pay down your mortgage faster.
1. Rent out your extra space
If you have extra space in your home — whether it’s a spare bedroom, extra closet, or unused parking space — you can turn your house into a money-making machine. Many people are looking for extra storage space or a place to park their cars, and are willing to pay a premium for it; you could earn hundreds in extra income each month that you can put toward making extra payments against your mortgage.
Some sites that can help connect you to customers include:
- Airbnb.com: If you have a garage apartment or even a guest bedroom, you can rent the space out to vacationers in search of budget-friendly accommodations.
- JustPark.com: For homeowners who have an extra parking space, you can rent it out by the day or by the month to commuters.
- StoreAtMyHouse.com: If you have a spare closet or even an empty nook in your garage, you can turn that extra space into cash by renting it out to people in need of storage.
2. Launch a side hustle
If you have some extra time, you can earn extra money on your own schedule to add to your mortgage payments. Depending on the side hustle you choose, you could earn as much as $25 per hour. For example, you could drive for Uber, deliver groceries for Shipt, or become a courier with Amazon Flex.
By dedicating your side hustle income to your mortgage payments, you can greatly increase how much of your payment goes toward principal rather than interest.
3. Put every windfall toward your mortgage
If money is tight every month, it can be difficult to carve out extra money to put toward your mortgage payment. But if you have any unexpected windfalls, you can use that money to pay off your mortgage early.
If you receive a raise, a bonus, or a tax refund, consider putting that money toward your mortgage; it will help you save even more over time in interest fees.
4. Switch to biweekly payments
Most people pay their mortgage once a month. But one way to trick yourself into paying off your mortgage faster is to switch to biweekly payments, instead.
Your monthly expense will be about the same, but because there will be a month where you make three payments instead of two, you’ll essentially add an extra payment. This approach can reduce your repayment term by months or even years, depending on how long your repayment term is.
5. Refinance your mortgage
When you bought your home and your creditworthiness determines what interest rate you received when you applied for a mortgage. There’s a chance that you got hit with a much higher interest rate than is available right now, and you didn’t get the best mortgage rate.
If your credit improved, you saw an increase in income, or if interest rates have dropped since you purchased, you may be able to save money by refinancing your mortgage. This plan can help you save thousands over the length of your loan, and help you reduce your repayment term.
If you decide that refinancing is right for you, check out this guide on how to refinance your mortgage for tips and guidance.
Accelerating your mortgage repayment
If your mortgage keeps you up at night, or you’d feel more secure owning your home outright, paying off your mortgage ahead of schedule makes a lot of sense. By doing your homework and using the tips mentioned above, you can save money and pay off your mortgage years ahead of schedule.