4 Strategies to Pay Down Your Mortgage Faster

4 Strategies to Pay Down Your Mortgage Faster

Two-thirds of American homeowners take out a mortgage when they buy their home, and even more investors use real estate leverage (other people’s money) to expand their portfolio.

Are they wrong to do so?

Not necessarily, although some people borrow more than they should. You may not even want to pay off your mortgage(s) faster; after all, some mortgage debt is downright cheap. If your home mortgage costs you 3.5% interest, and you can earn a return of 8% from the stock market (or 18% buying a new rental property!), maybe that leverage makes perfect sense.

Even rental property loans tend to cost less in interest than average stock market returns. Check out Credible.com to compare rates on conventional loans, and Visio, Kiavi, and LendingOne as direct portfolio lenders for rental property loans.

But the logic of real estate leverage only works if you’re actually putting aside a big chunk of your income and putting it to work somewhere. With the average savings rate hovering below 5% in America, most people are just paying their minimum mortgage payment and then spending the rest.

Let’s assume that you’re sick and tired of paying interest to banks. Paying off your mortgage(s) is a guaranteed return on investment, which can’t be said for investing in the stock market, or even for real estate investments (more on real estate vs. stocks here).

So how can you ditch your mortgage debt faster? Here are four strategies to pay off your mortgage quickly… enjoy!

1. Several Techniques to Pay Extra

First and foremost, call your lender, and ask about any prepayment restrictions. Some banks are persnickety, even about taking your money.

Read more  Prison Stocks to Invest In

Biweekly Payments: One option that’s painless is to call your lender and arrange biweekly payments. Every two weeks, you pay half of your regular mortgage payment.

This has two advantages: first, it mimics your paycheck cycle. If you get paid biweekly, you can have your mortgage payments deducted on the same day you get paid. Bada bing, bada boom, no budgeting necessary (at least for your mortgage payments).

Second, you’ll end up making an extra mortgage payment every year, since you’ll be making 26 half-month payments, rather than 12 one-month payments. Painless!

Round Up: No “cute” tricks here, just good ol’ fashioned round numbers. Round up to the nearest hundred, or to the nearest five hundred if you’re feeling more ambitious.

Raise Up: When you get a raise, add the entire raise amount to your mortgage payment. That’s one way to battle lifestyle inflation!

2. Refinance (or Don’t and Say You Did)

Refinancing comes with plenty of drawbacks, and only makes sense in very specific circumstances. But if you drop your 30-year mortgage to a 15-year mortgage, relatively early in your original loan, for a substantially lower interest rate… all right, I agree, it might make sense.

If you have an adjustable rate mortgage (ARM), and your interest rate skyrockets, that’s another scenario where it makes sense to refinance for a lower, fixed interest rate.

You could even pull some cash out to pick up your next investment property, while you’re at it. But I digress – this is supposed to be about reducing debt, not adding more!

Read more  Using A HELOC For Investment Properties Made Simple