Buying a home is a lifetime achievement! Working hard, saving up money, and investing in a property that you can call your own has been a dream for millions of people.
However, having a mortgage is a gigantic responsibility. Many homeowners become overwhelmed with their mortgage and end up going deeper into debt to try and keep up with their payments.
Even if you pay on time, the average mortgage for a home is about 30 years. However, with a few smart budgeting tips, you will be able to pay off your mortgage even faster and avoid overpaying in interest!
Keep reading to learn about our 6 smart budgeting tips to pay down your new mortgage quickly.
1. Save Up for Your Down Payment
If you haven’t yet put money down on your mortgage, then this tip is for you!
The best down payment for a mortgage is 100%! This is obviously not realistic for a lot of first-time home-buyers, but it is an important idea to keep in mind.
Think about scaling back from 100% instead of working up from 0%. Can you put 50% down? 30%? 20%?
Most people put 10% down to start with, which is a great start. However, if you can bump your down payment to 15% or even 20%, you are going to save yourself thousands of dollars in the long run.
If you need to take another 6 months to a year to save up just a little bit more to put a bigger dent in that down payment, then take the time to do it! It may make finances tight at the moment, but you will be thanking yourself down the road.
2. Pay Debt With the Highest Interest First
When considering paying off your mortgage more quickly, it is important to take a close look at the rest of your finances.
Do you still have a car to pay off? College debt? Medical expenses? Oftentimes these other expenses have a higher interest rate.
If you have debt that has a higher interest rate, it may be more prudent for you to tackle this debt first.
A great place to start is by writing down all of your debt, your minimum payments each month, and the interest rate for each debt. After that, make a plan for how you are going to tackle all of your debt.
There are a few ways to make a plan about paying off debt, but there are two popular methods.
One method is to pay off the debt with the highest interest first. Next, you can pay off the debt with the second-highest interest. This makes the most sense mathematically.
However, another method that Dave Ramsey talks about is paying off your smallest debt first. He believes this creates a snowball effect where you will stay motivated to continue tackling your debt.
Whatever method you choose, it is likely that your mortgage is going to have a lower interest rate than your other debt. This can make it seem like your mortgage is low on your list of priorities.
Don’t worry about this. If you are completely paying off any other high-interest debt that you have, you are going to save yourself more money in the long run and have extra money to throw at your mortgage down the road.
Remember, when it comes to saving money and paying off debt, it can be years before you start to see the pennies add up. However, when they do, it is going to be life-changing!
3. Make an Extra Payment Each Year
One way you can get ahead on paying off your mortgage is to pay bi-weekly instead of monthly. When you pay every two weeks, you will make 26 half-payments, which adds up to 13 full payments every year.
If you make paying bi-monthly a habit, you will not even notice that you are putting extra money away each month.
It may seem small, but if you make an extra payment each year on a 30-year mortgage, you are going to pay off your mortgage years ahead of time.
For this tip, make sure you discuss making bi-monthly payments with your loan provider. Sometimes they will not allow this or charge a fee. If they charge a fee, we do not recommend taking this step.
Speak with your loan provider about an alternate way to make additional payments. They may only allow you to make the additional payments at certain points throughout the year or add the extra amount to your monthly mortgage bill.
4. Overpay a Little Bit on Each of Your Mortgage Payments
If you can, try to commit to paying a little bit extra every month on your mortgage payment. This will help you attack your principal balance to pay off your mortgage sooner.
Whenever you make a mortgage payment, depending on your specific loan, some money is going towards the principal and some of it is going towards the interest that accumulates each month.
By paying even just fifty to one hundred dollars extra each month, you will be able to bring the principal amount of the loan down. This will bring the interest you owe down as well.
Just a few extra dollars each month goes such a long way. Throw any extra money you have every month towards your monthly payment.
5. Refinance Your Mortgage
Many people choose to refinance their mortgage for a shorter term. If you do this, it will lower your interest rate.
One cost to consider when refinancing is any closing costs that come with this. If the closing costs are high, you won’t end up saving money.
Look for a refinancing option that lowers your interest rate to around 2%. Again, what seems like a small adjustment adds up to make a big change.
6. Save Every Penny You Can
The best way to pay off your mortgage quickly is to save money overall. The only way to save money is to reduce your expenses and to increase your income.
Reduce Your Expenses
There are hundreds of tips and tricks on how to reduce your expenses. The first step is to keep track of your spending.
Using an app to track your expenses like the Everydollar app will help you see where your money is going. You might be surprised to see how much money you are spending eating out, on monthly subscriptions, and more!
Once you know where you are spending your money, you will be able to adjust your habits to start reducing how much you spend every month.
Small changes like packing your own lunch, quitting a membership that you hardly ever use, and planning a budget-friendly holiday can save you hundreds or thousands of dollars each year.
Once you reduce your cost of living, you will be able to use that extra money towards paying off your mortgage quickly.
Increase Your Income
In the modern-day, there are a ton of ways to earn extra income to help you pay off your mortgage more quickly. Here are a few of our ideas for this:
- Ask your boss for a raise
- See if you are able to increase your hours at your current job
- Get a part-time job with a different company
- Try making passive income online
- Sell the items you don’t need in your home
- Rent out your car when you aren’t using it
- House sit for families in your neighborhood
- Rent out an extra room in your house
Try to get creative with how you can start earning extra money! A few of our favorite ways to earn a little extra money is to try driving for Uber or Lyft, house sitting or pet sitting, teaching English online, and more.
Earning as little as 20 extra dollars a week will add up to over $1,000 every year!
If you are able to both spend less and earn more, the amount of money you will be able to save is going to transform your life. You will be astonished at how quickly you are able to pay off your mortgage and start putting your hard-earned money towards your other hopes and dreams.
Smart Budgeting Tips to Pay Off Your Mortgage
We hope these smart budgeting tips empower you to pay off your mortgage lightning fast. Adopting just one tip is going to help you cut down the amount of time you will have to make mortgage payments, and adopting all six of these tips is going to take off years of payments!
Remember, every small action adds up to make a huge difference. When you are feeling stuck, think about how exciting it will be to not have a mortgage payment every month. Think about the ways you are going to be able to spend your money when this burden is completely gone.
Are you interested in learning more about buying a home for the first time? Feel free to check out our blog!