Paying off your mortgage may seem like a daunting task, but did you know there are things you can do to help pay it off faster? Finding a way to make just one extra payment each year can shave off years of interest payments, putting dollars back in your pocket. In order to find the money to make an extra annual payment, you need to establish your motivation and a method.
First, you need the motivation to understand the long-term impact of one extra payment. To put this into better perspective, use our mortgage calculators to understand why making an extra payment can benefit your savings.
For example, let’s say you begin paying back a $150,000 mortgage with a 4% interest rate. Following a standard 30-year payment schedule, you can expect to pay off your mortgage by February 2045. But if you were to match and contribute one additional $712 payment each year, you could expect to pay off your mortgage in February 2041. That shaves a full four years off the total repayment time!
Next, you’ll need to create a method to pinpoint ways to save by following these three steps:
1. Review your current budget
Take a look at your monthly transactions, including credit statements, savings, debt and total expenses to get a better understanding of your financial picture. Once you understand your current saving and spending habits, you’ll be able to gain insight into how you can adjust those habits to contribute more to your mortgage.
2. Set a reasonable goal
In order to stay on track with your savings plan, start by setting an attainable goal. For example, if you know you can save $10 a month, start there. Put that extra $10 into your mortgage payment for one month. Once you’ve reached that goal, try bumping it up. Continue making incremental increases until you’ve reached your sweet spot. Remember, you’ll have more success if you start small and adjust, rather than starting too big and giving up shortly thereafter.
3. Automate extra savings
There will always be temptation to divert extra savings to another area, but to help avoid this, you can automate extra savings into your mortgage payment. One way to do this is to contact your bank to set up an automatic transfer of a set amount from your paycheck into a savings plan.
Finally, follow-up by checking your finances regularly. Even after you’ve completed these steps to ramp up your payment, it’s still important to continue evaluating your success to keep your long-term goals in the forefront of your mind. For example, set a regular “money date” to review your numbers, or schedule a weekly lunch devoted to analyzing your finances.