Paying off your mortgage can feel like endlessly feeding dollars into a vending machine and not getting to enjoy that candy bar until your appetite has disappeared. But trust us, eventually, your mortgage will be paid off and the return on the investment will be a sweet reward!
That said, you can work to shorten the total time until your mortgage is paid off and enjoy that reward sooner. Making one extra mortgage payment a year can shave off years of interest payments on that abode in San Francisco, CA, or that home in Colorado Springs, CO. What’s the key to making one extra payment this year? Establish your motivation and your method.
Before you decide how you’ll make an extra payment this year, use Trulia’s mortgage calculators to understand why making an extra payment can save you years of payments down the road. For example, say you begin paying back a $150,000 mortgage with a 4% interest rate. Following a standard 30-year payment schedule, you can expect to pay off your mortgage by January 2047. But if you were to contribute one additional $716 payment each year, you could expect to pay off your mortgage in January 2043. That shaves a full four years off the total repayment time! Not a bad deal.
Now that you’re motivated by the impact just one extra payment per year can make, focus that energy into a practical strategy to help you achieve your ambitions. Follow these steps, and you’ll be on your way.
1. Review your current budget
Take a look at your monthly credit statements, savings, debt, and overall spending to get a better understanding of your financial layout. Knowing your current financials gives you a grasp of your spending and saving habits, which in turn gives you insight into how you can tweak those habits to contribute more to your mortgage.
2. Set a reasonable goal
Big ambitions get overwhelming pretty quickly. To keep on track with your savings plan, start by setting a goal you know you can achieve. For instance, if you know you can save $10 a month, start there. Put that extra $10 into your mortgage payment for one month. Once you’ve reached that goal for a few months, bump it up to $20.
Increase incrementally until you’ve reached your sweet spot. It’s more effective to start small and calibrate than it is to start too big and give up shortly thereafter.
3. Automate extra savings
There will always be a reason to divert extra savings to another area (holiday spending, home repairs, car payments, you name it). To help you avoid the temptation of funneling funds elsewhere, automate extra savings into your mortgage payment. You can use your bank to automatically portion a sum from your paycheck directly into a savings plan.
Even after you’ve pumped up your payment, it’s still important to continue evaluating your success. Set a regular “money date” to check in with your numbers. Schedule a weekly lunch devoted to your finances — anything that can keep you in touch with your long-term financial goals and help you stay the course. You’ll find the result is worth it!