How to pay off my mortgage faster:

With the arrival of spring comes the most important period when the purchase and sale of property increases. The months of March, April, May and June are the busiest in the housing market.Mortgage

One of the most important variables in buying and selling property is the mortgage loan that is used to acquire the property. Today we will discuss some strategies to pay off our mortgage faster, this will save thousands of dollars in interest and these savings can be used for the education of our children, for our retirement, or for the purchase of a second property.

First let’s make a summary of the most important variables in a mortgage:

  •  The payback period is the time we have to pay our total mortgage.
  •  The term, this is the term by which our mortgage will have the same interest, same payments, and other variables. When the term ends we have to renegotiate the interest and the different variables.
  •   Fixed or variable mortgages, fixed mortgage maintains a fixed rate for the term chosen. A variable mortgage, the interest rate can vary depending on changes of interest rates.
  • Open or closed mortgages, open mortgages have the option to pay back the loan at any time without a penalty, closed mortgage has a few options, such as making double payments per month, and up to 15% of annual payments, but if we end mortgage before the term chosen have to pay a penalty, closed mortgages are the most common, and generally open mortgage has a higher interest.To demonstrate the different strategies, we will use a numerical example where we can see how to pay our mortgage on a open term, and how to save thousands of dollars in interest:

First, we can change our monthly payments biweekly payments. In the case of a mortgage of $ 250,000, our monthly payments of principal + interest would be $ 1,181.83, end up paying the mortgage in 25 years, and would pay $ 104,549.56 in interest. If we change payment every two weeks, our payments would be $ 590.62, and we would pay our mortgage in 22 years and three months, saving $ 13,218 in interest.
Second, we can make extra payments. These extra payments will go directly to the mortgage principal. If we make an extra payment of $ 1,000 per year (making payments biweekly principle + interest), we will pay the mortgage in 21 years and we will save a total of $ 21,141 in interest.
Third, we increased the principle + interest payment every two weeks (we paid an extra $ 1,000 per year). If we increase our payments by 2%, $ 12 more every two weeks, we will pay the mortgage in 18 years and we will save a total of $ 31,569 in interest.

I enclose a link where we can make the same calculations, changing the variables of our existing mortgage:

http://www.mortgagecalculator.org/

In short, some of the options to pay before your mortgage and save on interest would be: make payments on your principle + interest more frequently, making extra payments per year goes directly to the loan principle and decreases the balance + interest.

6 thoughts on “How to pay off my mortgage faster:

  1. Hi, Farshid! Really liked your webpage and tips. Mortgage in Brazil works somewhat differently, as the interest is not charged on the principle as the payment progresses, only on some extraordinary payments. So, whenever you acquire the mortgage, they calculate the interest by the time you decide to pay it in and they divide the total by the number of months. Plus, the interest rates here are insane (easily +20%/year), as well as the inflation which will easily reach 2 digits this year. Long story short.. Lucky you, Americans!

    1. Hi Daniel,

      Your comment is eye opening! wow 20% interest rate! that’s insane of course in the US back in the 80s the interest rate was very high and 20% down payment was required. I hope mortgage industry changes for the better in Brazil. Thank you for visiting,

  2. Hi there,
    This was really interesting and it’s amazing to think by making a few small changes, you can save thousands of dollars in interest costs. I think the best one was changing monthly payments to fortnightly – it really makes sense! Thanks for including the actual example with “real $”, as that makes the whole idea much easier to understand. You did mention a little about open and closed mortgages. What are your thoughts on the pros and cons of the fixed rate versus variable rate mortgage types? Global economics seems to suggest that interest rates may be relatively low for a period of time, certainly in the UK anyway, but if that changes I guess you could get caught out if you don’t have your finger on the pulse!
    Great advice and I’m sure this will interest many people.
    Mara

    1. Hi Mara,

      I’m glad you found my site beneficial. To answer your question the pros of variable rate mortgage is you din’t need as much income to qualify since the initial payments are lower, it can be less expensive, it’s for borrowers who do not plan to leave in one place too long. Cons are uncertainly of the payments due to change in interest rate. some ARM loans called negative amortization the home owner could owe more than what they originally bought the house for. Pros of fixed mortgage they payment will stay the same no matter what the interest changes to, of course this make budgeting much easier. easier to understand than ARM mortgage. Cons are not able to take advantage of falling rates. Some borrowers may not qualify due being more expensive.

      Great question! Thank you for stopping by.

  3. Hi Farshid,

    I am thinking of buying a property in Barcelona ( Spain) because prices are at their lowest right now and having a property in Barcelona is a great investment.
    It is actually one of the top spots for investing in a property at the moment! And such a great place to live 😉
    I think things are working a bit differently here though.
    We have open and closed mortgages. Open mortgages have been a real issue though for people who bought a property, because of the crisis.
    A lot of people were not able to pay the mortgage because of the high interests and lost their properties, that they had to resell at ridiculous prices.
    I would definitely go for a closed mortgage for that reason. You can never know how things will go in the future.
    Closed mortgages might have a higher interest at first but you won’t have bad surprises if we come into a situation of crisis like a few years ago.
    I like the option that exists in the USA to make biweekly payments.
    I don’t think this exists in Spain?
    You seem to be an expert on the subject so I wonder if you could give me more information on this.

    Thank you for this useful information. You cleared up a lot of things for me 🙂

    Regards,
    Angélique

    1. Angélique,

      I agree buying a property in most cases is a good investment. It’s unfortunate that some people lost their homes or life savings due to lack of information. I found Angeloinfo a good place for you to start. Please return with an update. Thank you!

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