I just told you that I Don’t Want To Be Debt Free and now I’m going to tell you how to pay off your mortgage quicker, how does that make sense? I do so because personal finance is personal. I would never give the same advice to everybody. Not everyone should invest their money when they could payoff debt, just as not everyone should worry about paying down their mortgage. That is why I present both sides. Your job is to compare the facts and make an informed decision.
How Can I Payoff My Mortgage Quicker?
It’s quite easy actually. It uses the same budgeting technique I wrote about in The Easiest Way To Save 3k.
The majority of us budget on a monthly basis. Although there’s nothing wrong with this commonality, our finances will greatly improve if we narrow our focus to bi-weekly budgeting.
Instead of making a mortgage payment each month, you’re making 2 half payments every 2 weeks. Though this sounds like the same thing, it’s not. One mortgage payment each month leads to 12 mortgage payments each year whereas bi-weekly payments lead to 26 half payments, or 13 full payments. You’re essentially making one extra payment each year but in a way that doesn’t affect your monthly cash flow.
Let’s say you owe $500,000 @ 5% for 30 years. By paying $1758 every two weeks instead of $3517 every month, you will cut your term 5 years and save approximately $86,000.
Don’t EVER sign up for “mortgage acceleration programs” or anything that resembles this. Most lenders offer a way to automatically draft these bi-weekly payments in order to payoff your mortgage quicker, but they do it at a cost. I’ve seen a range of $200-500 with an additional “per transaction charge.” Why would you pay for something you can easily do yourself? (Then again, why do I pay other people to make my food? hmm…)
Divide your monthly mortgage by 12 and add that amount to your regular payment. The extra portion applied directly to principle will lead to one extra mortgage payment each year. This do-it-yourself approach will result in similar savings and you won’t be paying the bank unnecessary fees as an added bonus.
Have you ever thought about making bi-weekly payments?