Paying off your mortgage can be a lifelong commitment - but once the dream of owning a home becomes a reality, there are things you can do to help pay off your mortgage sooner.
Early repayment of your mortgage has many perks. As well as boosting your credit score, lowering the debt sooner could mean retiring earlier and even being able to send your kids to college.
Clearing a mortgage debt can also mean you’ll be better off in the long run. You won’t have to spend years paying interest, and you can benefit from the equity if you ever decide to sell up.
Making extra mortgage payments
You’ll need to check with your lender that you’re eligible to make extra payments on the mortgage. Start by checking your current deal for terms like early repayment fees, and anything else you need to be aware of. Different mortgage deals will have varying fees or costs.
You’ll also need to check how much extra you are able to pay, and whether there are any added cost of doing so or limits to how much you can add on to payments.
Before you commit to any extra payments, make sure you can comfortably afford paying more. Rather than paying a little extra each month, why not save what you would spend and use it to make an extra mortgage payment at the end of the year. That way you still have the money to hand if you need it for an emergency.
How much can you save by making early repayments?
Paying your mortgage off earlier - or making extra mortgage payments - can help you save money in the long run.
If you’ve checked over your finances, you may want to consider refinancing your mortgage terms to 5, 10 or even 15 years. This would make your monthly payments higher but would mean your mortgage is paid off faster. You need to calculate what level of payments you can afford every month and how much you’d save over the life current life of a mortgage if you reduced the length of repayments.
Alternatively, overpaying slightly each month could save a lot in interest. Here’s an example. Adding an extra $100 a month to a new $100,000 mortgage with a 4.5% rate of interest over 30 years, could see you save over $26,000 in interest over the life of the mortgage. It also means you would end up paying the mortgage off in 22 years, not 30 years.
Tips to paying off your mortgage faster
If you want to pay off your mortgage faster, read our tips below.
- Talk to your advisor. Speak to your advisor about your mortgage payments and terms, and how flexible they are.
- Check for better deals. Check around to see if there are better, more affordable mortgage rates or deals you can benefit from.
- Make a single extra payment a year. Making one extra mortgage repayment a year can help reduce the amount you’re paying in interest over the full term of your mortgage.
- Rent out space to add extra income. If you have a spare room in your household, consider renting this out - and use the income to help pay off your mortgage earlier.
- Pay off higher debts first. Paying off higher interest credit cards or loans can be more beneficial than paying off your mortgage early, as they are usually more expensive over time.
- Use your savings. It may be worth looking at using your savings to pay off your mortgage, or to make some early repayments, but where possible, be sure to keep some savings in case you need them.