How To Pay Off Your Mortgage Faster
Chill Money Saving Tips
Paying off your mortgage would definitely be a cause for celebration, but for most people it takes years and years to get completely mortgage-free. It might seem like an achievement that you could only dream of, however you may be able to make it a reality.
In this article, we’ve covered whether you can put more money into your mortgage than the monthly fee you are currently paying, how soon you can pay off your mortgage and whether you can pay a lump sum.
IS IT WORTH PAYING MORE ON MY MORTGAGE THAN MY MONTHLY PAYMENT?
In short, yes it is - if you are in the right circumstances.
There are two ways you can pay more on your mortgage. You can either increase your monthly payments or you can pay a lump sum. For more information about lump sums, please see the next section.
Before you start paying off more on your mortgage, you need to make sure that you have enough money to do so and you should protect yourself against any unexpected incidents that could be costly. Make sure that you have home insurance so that, should something go wrong at home, you won’t leave yourself short of money.
You also need to be aware that, should you increase the monthly amount, you will need to keep up these repayments, otherwise you may lose your home. In some circumstances, you may be able to ask the bank or the mortgage provider if you can reduce the payments again, but you should be aware of such situations before you increase the amount in the first place.
You should also be aware that, if you want to pay extra money off your fixed-rate mortgage, you may be charged a fee. You should check this with your provider as this would be a waste of money.
If you want to increase the amount you pay on your mortgage each month, you could reduce your interest by quite a lot. For example, you have 20 years left on a €200,000 mortgage with an interest rate of four per cent. By paying an extra €100 each month, you could save over €11,000 in interest and reduce your mortgage term by 10 per cent (around two years). There are many online calculators to work out the total amount of interest you could save and how many months you could reduce your mortgage payments by.
IS IT WORTH PAYING A LUMP SUM OFF MY MORTGAGE?
Again, if you’re in the position to, paying a lump sum can be a great way to become mortgage-free faster.
To pay your mortgage off faster, you could increase the monthly payments, as discussed above. Or, you could pay in one large lump sum. This is a good idea if you’ve recently come into some money from a family member (or won the lottery!). You can make one single payment to your mortgage, otherwise known as reducing the capital. You must make sure to tell your mortgage provider that this sum is to be paid off the capital and not off the interest. Otherwise, you may not see a reduction in your monthly payments.
HOW SOON CAN I PAY OFF MY MORTGAGE?
You can pay off your mortgage as soon as you want, depending on whether you have the money available to you. There isn’t a minimum amount of time that you should be paying monthly amounts for.
SHOULD I PAY OFF MY MORTGAGE EARLY?
Now that we’ve determined whether you can pay your mortgage off early, you might be asking whether you should pay it off early. There are actually a couple of benefits to increasing your mortgage payments to get it paid off faster.
If you increase the monthly payments, not only will you reduce the amount of interest you pay on the loan, but you’ll also reduce the amount of time you’ll be paying your mortgage for. In our previous example, we stated that you could save €11,000 in interest on a four per cent mortgage and reduce the term by around two years by paying an extra €100 per month. Obviously, the higher you can make your monthly payments, the more money you will save in interest and the more quickly you’ll pay the sum off.
By paying off a lump sum, you could reduce your monthly payments. Alternatively, you could keep your monthly payments the same as they were before the lump sum was paid in and reduce the length of your mortgage term. A further benefit is that it may lower the amount of interest you’re paying.
If you can afford to pay your mortgage off faster, then you should do it. If you want to pay off your mortgage early, you could start saving in other ways so that more of your income goes towards paying it off. You might choose to cook more instead of going out to eat. You could try using cashback websites to make money back on your purchases or you could try walking instead of taking public transport. You could even start to sacrifice holidays, putting the money into the mortgage instead.
Paying off your mortgage can be hard, particularly when it’s set for a long time, such as 35 years. But every little helps and each payment could gradually bring down the amount you’re paying in interest and decrease the mortgage’s term.