Owning a home is one of the most significant financial commitments many of us make in our lives. The mortgage you take out to buy a house is a long-term obligation, typically lasting 25 to 30 years. While this might seem manageable in the short term, over the life of the loan, the amount of interest you pay can add up to thousands—if not hundreds of thousands—of dollars.
For homeowners looking to reduce the length of their mortgage and save money on interest, there are strategies to shorten their mortgage amortization. Whether you’re nearing the end of your mortgage term or just starting, taking steps now can put you on the fast track to financial freedom. Here’s some key advice to help you shorten your mortgage amortization and save significant money.
1. Make Extra Payments
One of the most effective ways to shorten your mortgage amortization is by making extra payments whenever possible. This could be in the form of:
- Extra monthly payments: If your budget allows, pay more than your required monthly mortgage amount. Even an additional $100 or $200 can make a huge difference over time.
- Annual lump sum: Many mortgages allow for lump-sum payments, typically 10-20% of the original mortgage balance, once a year. Making this kind of payment can significantly reduce your balance and the interest you owe.
- Bi-weekly payments: Instead of making monthly payments, opt for bi-weekly payments. This results in one extra payment per year, which can shave years off your mortgage.
The key benefit of extra payments is that they reduce the principal balance more quickly, which in turn reduces the amount of interest you pay over the life of the loan.
2. Refinance to a Shorter-Term Loan
If you’re financially able to handle higher monthly payments, refinancing to a mortgage with a shorter term (such as 15 years instead of 30) can save you a lot of money in interest. While your monthly payments may increase, the interest rate for shorter-term loans is usually lower, and you’ll pay off your mortgage faster.
Before refinancing, check the fees and penalties associated with breaking your current mortgage. If the costs of refinancing are high, this option may not be ideal for you. However, if the long-term savings outweigh the initial costs, refinancing could be an excellent way to reduce your amortization period.
3. Increase Your Regular Payments
If your mortgage allows for increased regular payments (such as increasing your monthly payment by 10%, 15%, or 20%), this can accelerate your mortgage payoff. Even a small increase in your monthly payment can have a profound impact on how quickly you pay off your mortgage.
For example, if you increase your monthly mortgage payment by just $100, this can shave off years from your mortgage and save you thousands in interest. The more you contribute to paying down the principal balance, the less interest you’ll accumulate, which means you’ll pay off your mortgage sooner.
4. Round Up Your Payments
A simple but effective strategy is to round up your mortgage payments to the nearest hundred or thousand dollars. For instance, if your monthly mortgage payment is $1,470, you could round it up to $1,500. Although this doesn’t require a huge financial sacrifice, the extra $30 each month will quickly add up and reduce your mortgage balance. Over time, this can make a big difference to your amortization period.
5. Windfalls and Bonuses
Whenever you come into extra money—whether through a tax refund, work bonus, inheritance, or selling personal items—consider using this unexpected income to pay down your mortgage. If you can apply it to your principal balance, you’ll reduce the loan’s overall interest and shorten the amortization period.
This may seem like a one-time solution, but taking advantage of windfalls can help you chip away at your mortgage without stretching your regular budget. For example, using a tax refund to make a large lump sum payment could take years off your mortgage.
6. Invest in Debt Consolidation or Mortgage Acceleration Programs
Some homeowners may benefit from debt consolidation programs, where high-interest debt is rolled into their mortgage, allowing them to pay off debts faster. Additionally, mortgage acceleration programs offer tools that help you manage your mortgage more efficiently by applying various strategies, such as making automatic bi-weekly payments or splitting your payments in a way that accelerates principal reduction.
However, be sure to research these programs thoroughly and speak to a financial advisor before taking this route, as it may not be suitable for everyone.
7. Review Your Insurance and Property Taxes
Sometimes, reducing your mortgage costs isn’t just about the loan itself—it can also involve saving on other expenses like property taxes or homeowners’ insurance.
- Reevaluate insurance policies: Check your homeowners’ insurance to see if you can switch providers for a better deal or adjust your coverage to reduce premiums. Lower premiums can free up money that you can redirect into your mortgage.
- Appeal property taxes: If your property taxes are high, consider appealing your tax assessment. If successful, this could lower your monthly tax payments, allowing you to reallocate that money toward extra mortgage payments.
8. Consider Renting Out a Portion of Your Home
If you have extra space in your home, consider renting out a room or a basement suite. The additional rental income can be applied directly toward your mortgage, helping you pay it off faster. Whether it’s short-term renting through platforms like Airbnb or renting to a long-term tenant, this strategy can significantly speed up the amortization process.
Final Thoughts
Shortening your mortgage amortization isn’t just about paying off your home faster; it’s also about freeing yourself from long-term financial burdens and saving money on interest. Whether through extra payments, refinancing, or other strategies, the more you can reduce your mortgage balance upfront, the less interest you’ll have to pay over the life of the loan.
If you’re unsure about which strategy is best for you, it may be helpful to speak with a mortgage advisor or financial planner. They can help assess your situation and provide tailored advice on how to pay off your mortgage faster and save money in the process.
In the end, the more aggressive you are with paying down your mortgage, the faster you’ll achieve true homeownership freedom—and save a significant amount of money in the process. Happy homeowning!
Please call us for an assessment of your situation 403-253-2022 or visit us at MIP