What would you do with your money if you no longer had any debt payments? How would it feel to not have credit card payments, student loan payments, car payments, or mortgage payments? Being completely debt-free is something most people won’t experience until much later in life. However, there are a growing number of people who have chosen to live their lives differently and have become completely debt-free (including the house) in their 30s. Some have even achieved this in their 20s. As you may know, I set a goal to pay off my mortgage and have a net worth of $1M by 2020. I’ve researched and thought about some different ways to pay off a mortgage faster.
1. Set a goal or target payoff date. I think this is the most important and most effective thing to do if you really want to pay off your mortgage faster. You have to set a goal and break it down into pieces or intermediate goals. Then, work as hard as you can to make it to each of those intermediate points. This can be for any goal, not just for paying off your mortgage faster. If you want to get something done, you need to have a good plan. Write it down, break it down, and work your plan.
2. Get an extra job (or two). In order to help me achieve my financial goals, I’ve picked up a bunch of extra jobs along the way. I’ve worked as a server at a Mexican restaurant (Uncle Julio’s in Fairfax Corner), driven for Uber and Lyft, got my real estate license, and started this blog. These extra jobs have contributed tens of thousands each year toward my goals. Even if the hourly rate is much less, having those few extra dollars each week makes a big difference over time and helps you stay focused on your goal. You may also pick up some useful skills that can benefit you for life. Getting my real estate license saved me well over $20,000 on my last two real estate purchases.
3. Set your automatic payments higher. Most mortgage payment servicers allow you to make your payments electronically and give you an option to add extra principal to your monthly payment. Even if you can only add $10, $25, or $50 per month, these little amounts can take years off your mortgage, and you probably won’t even notice the difference. If you can add a few hundred per month towards your principal, this will definitely speed up how fast you pay off your mortgage.
4. Reduce your investments temporarily. It’s definitely good to be investing for your future or for your retirement, but investing while you have have debt is like borrowing money to invest it. You had better be sure your investment returns outpace the interest rate on your debt. If your employer matches your retirement contributions, I’d say go get your full match. After that, it’s really up to you. The interest rate on my mortgage is pretty low, but I still like the fact that I’m getting a guaranteed return when I pay down my mortgage faster. I do still set aside some money to invest, but I’ve reduced my investments temporarily to focus on my goal.
5. Get a cheaper car. This is a tough one for a lot of people, including myself. Here in northern Virginia, we have to pay property tax on our cars annually so we feel the tax bite year after year. Transportation is usually the second largest expense for most households. If you can keep this expense down, you’ll free up more of your budget for other things.
Related: How Much Should You Spend On A Car?
6. Rent out a room on airbnb. Obviously, this one won’t work for everyone, but if you have an extra room, you can rent it out occasionally for extra income. Airbnb is also a great way to save on lodging when traveling internationally.
7. Refinance. Rates have been at historic lows for many years now but are finally starting to edge up. If you’re rate is above 5%, you still haven’t missed the boat. Talk to a lender if you think you could save some money by refinancing. If you’ve paid down a good chunk of principal, refinancing to a 15-year mortgage can get you a lower interest rate and may even shorten your term substantially.
8. Get rid of PMI. If you made less than a 20% down payment, chances are you are paying PMI (private mortgage insurance). If you aren’t, you may be paying it with your interest in something called LPMI (“lender-paid PMI”). If you think you have more than 20% equity in your house now (either by paying down principal or increase in value of your house), you can get an appraisal and ask your lender to remove PMI. If home values have gone up substantially in your area, it may be worth paying that $500 or so for the appraisal to get rid of PMI.
9. Make biweekly payments. This is conventional wisdom that’s thrown around the internet. I’m not a huge fan of this one, but I guess it works. If you have to go through the hassle of setting this up with another company, I wouldn’t do it.
10. Make an extra payment each year. Instead of making biweekly payments, you can just make an extra payment each year too. These last two are just common sense. Of course, if you pay extra on your mortgage, it will get paid down faster.
I hope you found this post helpful and found at least one thing you can do to pay off your mortgage faster (if you want to). Of course, if you’d rather invest extra money and continue to make minimum payments on your mortgage, I totally understand. I do a little bit of both, but I’m leaning more toward paying extra on the mortgage as the stock market is looking pretty overvalued these days.