Making a new year’s resolution is an annual tradition for lots of people. After all, most of us want to make positive changes in our lives, so why not use the start of a new year to get the ball rolling?
When it comes to making financial goals for the new year, most people focus on paying off credit card debt or building up savings. These are both worthy resolutions, but there’s another, very achievable, money goal that many of us overlook: paying off our mortgages early.
The reason that so few people resolve to start accelerating the payoff of their homes is probably because it seems so daunting. Mortgages are huge loans, and paying them off feels like a Herculean task. But it doesn’t have to be – take a look at the information below for details about shaving years off your repayment schedule.
The power of extra payments
Paying extra on your mortgage may feel insubstantial, but coughing up even just a little bit of extra cash every year can have a big impact. Even with interest rates on mortgages low, paying your mortgage off a couple of years early can save you thousands – or even hundreds of thousands – of dollars. Plus, you’ll own your home free and clear much sooner than you expected.
There are two ways to approach making extra payments: you can tack a little extra onto your regular monthly payment or make some additional, large payments a few times a year.
Aim for two
Regardless of whether you choose to make extra mortgage payments on a monthly or semi-annual basis, make it your goal for 2014 to make the equivalent of at least 2 extra payments. Two extra payments is a good goal because it’s a stretch without being too difficult, and if paying extra becomes a habit, you’ll be able to slice 7-8 years off the length of your mortgage. Again, this will save you thousands in interest and set you up for financial freedom almost a decade ahead of schedule.
Be sure you’re paying principle
One thing to watch out for when you’re making extra payments on your mortgage is that the bank you’re working with is applying that cash to the principle on the loan. Usually, lenders do this automatically, but before you re-adjust your monthly payments, put in a call to your bank to make sure that they’re clear on your goal.
Paying extra on your mortgage in 2014 is a good way to get started on the path to a paid-off home – be sure to readjust your budget to accommodate your new goal!