A mortgage, like any other debt, can be a burden that you’d rather get rid of sooner rather than later. While most people stick to what is set up in the amortization schedule, others prefer to fast track the repayment process and save on the interests to be paid. This is referred to as debt acceleration, velocity banking, or mortgage acceleration.
Here are some of the ways you can pay off your mortgage early or cut your repayment period by 60% or more.
1. Mortgage Recasting
Bonuses, tax refunds, and other windfalls can help you to cut not only your amortized debt but also reduce the interest rate on your mortgage.
Here is how it works:
You get a lump sum amount from a windfall and use it to pay the principal balance
Then, you get your mortgage renegotiated or recast depending on your lender
Most lenders will happily take the lump sum payment and adjust your mortgage amortization schedule, monthly payments, or interest rate depending on your preferences. In this case, a lower interest rate and readjusted repayment schedule is the preferred route.
2. Start a Fortnight Repayment Schedule
This repayment strategy has been proven to shave off at least three to four years off traditional amortizations. The strategy involves signing up for a repayment schedule where you make payments every two weeks rather than monthly. A fortnight repayment schedule will help you to make more payments in a year and also save on the interest charged.
The ability to make payments every fortnight will depend on your mortgage provider. Some lenders charge a small fee to facilitate this schedule while others do it for free.
Consider taking a second job or supplement your household income with a side business or freelance gig to make the fortnight payments. Doing this will allow you to use your end month income to pay off the principal balance.
3. Liquidating Other Assets
Mortgages aren’t exactly great investment vehicles, unless the house appreciates in value to cover the total interest. With this consideration, many home buyers prefer to liquidate other investments they may have in their books and use the money to increase their house equity. The investments could be stocks, bonds, money held in mutual funds, tangible assets like vehicles, among others.
4. Use Mortgage Points Available with Your Lender
Most lenders offer their mortgage with an embedded point system that is outside the traditional home loan package. The points could be in the form of discount points or origination points.
Discount points, also referred to as prepaid interests, are normally offered for 1% of the total mortgage. Purchasing discount points can reduce your monthly interest rate.
Discount point purchases are also tax-deductible as per the IRS rule changes in 2017.
Purchasing discount points is a sure way of paying off your mortgage and saving some money along the way. This will help you enjoy a lower interest rate from the purchase and ultimately reduce your amortized debt.
Find out from your lender about the points available in the mortgage. Your accountant can also educate you on the tax-deductible on the mortgage points you purchase.
5. Refinance Your Mortgage, The Right Way
Mortgage refinancing should only be considered in very specific circ*mstances or when it makes sense. Never refinance just because you want to increase your equity or reduce the amortization period.
Consider refinancing only when:
You are planning on keeping the house for the long term
The current interest rates are significantly lower (1% or more) than what you are paying for the mortgage
You will get a better deal and terms for the new loan
You want to cut ties with the mortgage provider
You want to switch to a fixed-rate mortgage
You are in need of a cashout refinance to take care of other expenses like major repairs
If done wisely and at the right time, mortgage refinancing could help you pay off your loan early. Perhaps you weren’t keen on a short amortization period when you bought the house but things have changed since then. For example, you may have a new job or your household income has increased. In such a case, refinancing your mortgage could help you accelerate your mortgage.
Other advantages of refinancing a mortgage include the possibility of lowering interest/monthly payments, getting rid of mortgage insurance when you are comfortable with equity, and your ability to pay off the rest of the mortgage, debt consolidation, among others.
There are several approaches you can take to pay off your mortgage through personal finance and other means. Some of the strategies discussed here also need a degree of caution and wisdom to work as expected, e.g. refinancing.
All in all, having the discipline and drive to own your home is by far the most important thing required to pay off your mortgage.
