Owning your own home is perhaps the ultimate dream, but having a mortgage hanging over your head like the Sword of Damocles for 30 long years can be daunting. If you take a mortgage in your 30s, you won’t pay it off until you are in your 60s, if you go by the mortgage amortization schedule. The good news is you don’t have to wait for 30 years to clear your mortgage. There are numerous ways to hasten the repayment clock.
Here are some ways to accelerate your mortgage amortization schedule, so that you can pay off your mortgage early.
1. Refinance Your Mortgage for a 15- or 20-Year Loan
Mortgage refinance is one of the best available options to pay off your home loan. While a 30-year loan period is the norm, today, many loan institutions offer shorter loan terms. Yes, your monthly payment will increase, but it will help amortize your home loan quicker because a bigger portion of your monthly payment will go towards repayment of the principal rather than the interest. So, you will reduce the principal and interest simultaneously. Also, remember when you refinance, you usually end up with a lower interest rate.
2. Make Higher Monthly Payments on Your Mortgage
While refinancing your mortgage is the quickest way to accelerate your mortgage amortization schedule, you may not want to do this because of the closing costs and other factors, such as the possibility of losing your job. Furthermore, if you have just a few years remaining in your mortgage term, it doesn’t make financial sense to refinance the loan. In such a case, you can make sizeable extra payments to close the loan quickly. It will still take a few years, but this will be shorter than your actual loan term.
3. Refinance with a Lower Interest Rate
If you want to retain the loan term, you can do it. But if you want to pay off your mortgage quicker, it is best to refinance your 30-year mortgage with a lower interest rate. This option is perfect for people who can’t afford higher monthly payments that come with reduced loan term. However, to avail a lower interest rate on your existing mortgage, you should have a low debt to income ratio and strong credit standing. If you qualify, speak to your lending institution to get your interest rate reduced. Alternatively, you can check with other lending institutions to see they can offer a more competitive interest rate than your existing lender. Remember, while refinancing with a lower interest rate will reduce your monthly payments and you will save money on interest payments over the term of the loan, it will not help you repay your mortgage quicker.
4. Make Fortnightly Payments
Your mortgage amortization schedule lists monthly payments. However, you can accelerate the schedule by making payments every 15 days instead of once a month. If your monthly mortgage payment is $1000, you break it into two payments of $500 each every two weeks. When you use this method of repayment, you will be making 26 fortnightly payments annually. This means you will be making an extra month’s payment on your mortgage without feeling the pinch. This extra payment will help to reduce the loan term over a period of time.
Use these tips to pay off your mortgage early and make your mortgage amortization plan more attractive. They help you save money and get out of debt quicker, making it a worthwhile endeavor.