There are two ways to own your home. Either you can pay cash upfront or you can pay little by little, year after year. For most of us, monthly mortgage payments are the most feasible option. While we continue to chip away paying off our homes, some of us may wonder how we can speed up the process. Whatever your reason may be to reduce debt faster, there are a few simple strategies you can easily put in place now to help you pay off your mortgage early.
Pay Off Mortgage Early?
When you pay off your home loan faster, you end up paying less for your home than if you were to pay the minimum required payment for the term of the loan. Paying off your house early will save you thousands, tens of thousands of shillings and possibly more, over time. How?
For example, the amount paid in interest is nearly equal to the original home loan. With such a sizeable interest payment, it’s easy to understand why paying off your mortgage sooner is so appealing. But what can you do? Before you start buying lottery tickets or cashing in your coin jar, here are some simple tricks you can use to knock years off your mortgage while saving money in the process.
Related: Should you Pay off your Mortgage early?
Set up Bi-weekly Mortgage Payments
This strategy could reduce a 10-year mortgage to 5 years and save you tens of thousands of shillings in the process. Essentially, you will take your monthly mortgage payment (including taxes and insurance), divide that in half, and then make a payment every two weeks rather than once a month. In effect, this strategy will have you make the equivalent of 13 monthly payments per the calendar year instead of 12.
Not only do you reduce your mortgage by 5 years but you also end up saving in the process. Before you implement this strategy, check with your lender to see if they accept bi-weekly payments without charging a fee. If they do charge a fee, this may not be the best tactic to use to reduce your mortgage and you should possibly look to one of our other recommended strategies.
Refinance Your Mortgage
This strategy is highly relative to your situation. If you currently have a high-interest rate but have been in your home for a few years and have built up some equity, refinancing your mortgage may be a good solution before interest rates go up. Even a 1% decrease in your APR can save a considerable sum of money in the long run. Alternatively, if you feel financially capable to handle a larger mortgage payment, a 5-year mortgage over a 10-year could save you tens of thousands of shillings.
Typically, with a 5-year home loan you’re rewarded with a lower APR than a 0-year term; however, even with keeping the APR at the same rate we’ll see a substantial difference in total interest paid. Not only would you pay less in interest you would have also effectively eliminated years of paying on a mortgage!
Note: APR- Annual Percentage Rate
A Little Extra Goes a Long Way
You may think that little amounts don’t count for much in the larger picture of a 10-year home loan; such as the money you spend on your morning cup of coffee. However, what if you could shave off years from your home loan by skipping your coffee and instead put that money toward your mortgage? Even one hundred extra shillings each month could save you thousands of shillings in interest payments.
For example, let’s say you don’t buy your morning cup of coffee and instead applied that 500 bob toward your mortgage. In this situation, we assume a morning cup of coffee is 500 bob! At 500 bob a day, we are looking at an additional kes 15,000 a month that could be going toward your mortgage.
In this scenario, we have not only effectively knocked off a few years of your mortgage payments, but also reducing your interest.
Monetary Windfalls
The main strategy for those wanting to pay off their mortgage early is to focus on reducing the overall principal of their home loan as fast as possible. Monetary windfalls are any form of extra money that comes your way and is technically unplanned for. This could include things like gifts, bonuses at work, cash from working overtime, inheritance, or tax refunds among others.
Speak to Your Lender
Make sure to speak with your mortgage lender about your financial situation and how you want to pay off your mortgage faster. You don’t want to begin a strategy to pay off your mortgage early only to find out that your lender has penalties for early payments.
Some lenders may only allow extra payments to be made within a specific timeframe. Make it clear that when you apply for an additional payment that it needs to go against the principal of your home loan and not towards any future mortgage payments.
Take Time to Build Your Strategy
Paying off your mortgage early is all about having the right strategy, tailored to you. Take your time to explore your options, get counsel from your lender and pursue the strategy that will pay off your mortgage the fastest.