Smart Strategies for Young Homeowners
BY BRANDON JOHNSON | 3 MIN READ
For many young homeowners, the idea of paying off a mortgage early can seem like a distant dream. However, with the right strategies, it’s possible to significantly reduce the time it takes to become mortgage-free—and save a considerable amount of money in interest along the way. Paying off your mortgage faster not only provides peace of mind, but it also frees up funds for future investments, travel, or retirement. Here’s how to get started:
- Make Biweekly Payments Instead of Monthly
One of the simplest ways to pay off your mortgage faster is to switch to biweekly payments. Instead of making one monthly payment, you split your monthly payment in half and pay every two weeks. Since there are 52 weeks in a year, this method results in 26 half-payments, or 13 full payments, instead of the usual 12. That extra payment each year can shave years off your mortgage term without a major financial commitment.
- Round Up Your Payments
Rounding up your monthly payment to the nearest $100 or $200 can make a significant impact over time. For example, if your mortgage payment is $1,320, consider paying $1,400 or $1,500 each month. The extra amount goes directly toward your principal, reducing the balance faster and shortening the loan term. Even small additional payments can make a big difference.
- Make Extra Payments When Possible
If you receive a work bonus, tax refund, or any other financial windfall, consider putting part of it toward your mortgage. An extra payment here and there, especially in the early years of your mortgage, can drastically reduce your overall interest payments and shorten the loan period. Some lenders even allow you to specify that extra payments go directly toward the principal, accelerating your payoff.
- Refinance to a Shorter-Term Loan
Refinancing to a shorter-term mortgage, such as a 15-year loan, can significantly reduce the amount of interest you pay over the life of the loan and help you become debt-free faster. While this typically means a higher monthly payment, the interest savings can be substantial. It’s important to assess your financial situation to ensure this option aligns with your budget.
- Use a Lump-Sum Strategy
Some homeowners adopt a lump-sum strategy, where they save up extra funds over time and make a large one-time payment toward their mortgage. This can be particularly useful if you want to avoid making smaller extra payments each month but still want to reduce your balance. The earlier in your mortgage you make this lump sum, the more you’ll save on interest over time.
- Cut Expenses and Redirect Savings
If you’re serious about paying off your mortgage faster, consider trimming non-essential expenses and redirecting those savings toward your mortgage. For instance, reducing dining out, subscription services, or impulse buys can free up funds for extra payments. Even a few hundred dollars a month can add up quickly, helping you pay down your mortgage much sooner.
- Review Your Mortgage Terms
Some mortgage agreements have prepayment penalties, so it’s crucial to check your loan terms before making extra payments. If your loan includes a prepayment penalty, weigh the potential costs against the benefits of paying off your mortgage early. In many cases, you can still make additional payments, but it’s worth understanding any limitations your lender may impose.
- Increase Your Income
While it may not be the most immediate solution, increasing your income through a side hustle, asking for a raise, or exploring higher-paying career opportunities can give you more financial flexibility. The additional income can be directed toward your mortgage, allowing you to pay it off faster without sacrificing your lifestyle.
Why Pay Off Your Mortgage Early?
Paying off your mortgage ahead of schedule has several long-term benefits:
Interest Savings: The faster you pay down your principal, the less you’ll spend on interest, potentially saving you tens of thousands of dollars.
Financial Freedom: Being mortgage-free gives you the freedom to redirect your money toward other goals, like travel, investments, or early retirement.
Reduced Stress: Knowing you own your home outright can provide a sense of security, especially during uncertain times.
