When it comes to debt, mortgage debt is perhaps one of the best kinds to have. After all, your home not only provides a roof over your head but is an investment in itself. Still, nobody wants to carry more mortgage debt than they need to, or for longer than they need to. The good news is that there are a few simple yet effective ways to pay down your mortgage faster so you can be one step closer to achieving financial freedom.
Avoid Pre-Payment Penalties
If you're thinking about making additional payments towards your mortgage, the first thing you need to check into is whether your lender charges pre-payment penalties as part of your loan agreement. This is becoming less common--but some lenders may still get away with charging these penalties for paying extra on your loan or paying off your loan early. If you aren't subject to any pre-payment penalties, make sure you apply any extra funds directly to your loan balance rather than to next month's payment.
Opt for Bi-Weekly Payments
One insanely simple way to literally cut years off the life of mortgage loans (and likely save thousands of dollars in the process) is to enroll in bi-weekly payments instead of monthly ones. By paying half of your usual mortgage payment every two weeks, you'll actually end up making the equivalent of one extra mortgage payment each year. As you might imagine, the savings can add up quickly.
Look Into Refinancing
If you're paying too high of an interest rate, you're wasting your hard-earned money. If it's been more than a few years since you took out your home loan, it can't hurt to look into refinancing. If you can secure a lower interest rate, you'll be able to shave dollars off your mortgage payment. You can then apply those extra dollars towards your mortgage to pay it off sooner. Just be sure to factor in closing costs and other fees associated with refinancing before you begin.
Drop Your PMI ASAP
If you still have private mortgage insurance on your loan, you could be wasting hundreds of dollars per month if you have more than 20% equity in your home. Most lenders won't drop PMI automatically when you hit the 20% threshold, so be sure to find out what steps you'll need to take to have yours dropped. You can then apply some or all the money saved to your balance to pay off your mortgage faster.
