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Friday, September 12, 2014

86. Eight Tips to Pay Off Your Mortgage Faster

Want to pay off your mortgage faster? Consider these tips.


1. Pay off all other debt including credit cards, student loans, etc. …before buying a house. Having no debt other than your house mortgage will allow you to pay off your mortgage faster and allow you to have more disposable income.






2. Buy a house you can afford.
Just because you get approved for a 250k loan doesn’t mean you should buy one. Consider buying a house 2 times your annual salary. If you think you need a bigger house then 7-10 years down the road consider selling and upgrading to a bigger house. Also, ensure that your mortgage is 30% (and preferably 25%) of your take home income. Finally, try to put down at least 20% down payment of the value of the mortgage to avoid PMI (Private Mortgage insurance). 



3. Get a 15 year mortgage instead of a 30 year mortgage
…if you can afford it. The interest you’d pay on a 15 year note is about 1/3 or less than what you’d pay for a 30 year note. Otherwise get a 30 year mortgage and pay it off early.









5. Set up automatic biweekly payments.
We did this from the get go with our loan. This can save literally thousands of dollars in interest over the lifetime of a loan and helps you pay off your mortgage early.  So instead of 12 monthly payments if you were to pay once a month you'd end up with 13 monthly payments. See chart above for example. In June and November there would be additional half payments made to the mortgage loan. 




6. Pay extra every month.
We try to pay an additional $150-$230 extra above our standard mortgage payment a month towards our loan. Our goal is actually to pay an additional $5k of our mortgage yearly. This is an ongoing goal that does require sacrifice. For example we don't have cable or satellite. This means we hope to pay our house in 17-18 (June 2031) years instead of 30 years.

 


7. Reduce expenses and increase income
Get on a budget and consider ways you could save money. Consider too tracking your expenses with www.mint.com. Consider going back to school for increased or better opportunities for employment. Also work hard to get raises and promotions.






8. Reward yourself
Regardless if you’re using the debt snowball (lowest balance) or avalanche (highest interest) methods of reducing debt celebrate each accomplishment. Take yourself or your family out to eat after reaching a milestone.

What do you think? Were these helpful? Do you have other tips for paying off your mortgage early?