We all want to be mortgage free and secure in our retirement. How much thought have you put into this though? Is it something you have considered in your long term financial planning? In your search for your first home? Or does it factor into your investments? Chances are that it absolutely should, and we are going to quickly examine several ways you can pay off your mortgage more quickly, save on interest, and be set up for a more secure retirement and if you have retirement on your mind, have a read through our strategies for preparing for retirement.
Pre Payment Privileges
Each lender offers different pre payment terms, but most lenders offer prepayment privileges from 10% to 20% of the original mortgage amount. This can allow you to increase your payments and apply lump sum payments of up to 20% of your original mortgage amount every year.
This means on a $500,000 mortgage amortized over 25 years at a fixed rate of 2.5% your monthly payments would be $2243.08 per month and in 25 years you would be mortgage free.
If your goal was to be mortgage free as soon as possible there are a few things you can do.
Biweekly payments mean making 26 payments per year. If you switched from a monthly payment of $2243.08 and made a biweekly payment of $1,121.54 (half of the monthly payment), you would be mortgage free three years faster. You would also save $19,675.54 in interest.
Check out our indepth breakdown here
Imagine being mortgage free nearly 3 years sooner by simply making accelerated biweekly payments
But we are just getting started.
You could be free from your mortgage 3 years faster and save almost $20,000 in interest, but we can do better.
Topping up your Payments
If being mortgage free would be life changing and was your priority.
What would increasing your biweekly payments by $200 achieve?
By taking accelerated biweekly payments and increasing each payment by $200 you would shave off another 4 years off your mortgage and save an additional $20,390 in interest.
Topping up your biweekly payments could mean being mortgage free 7 years faster and saving over $40,000 in interest!
Accelerating your Retirement
Being mortgage free 7 years faster would mean an extra $26,917 to spend of save every year. Over the 7 years this would be an extra $188,419, talk about an impact!
If your mortgage was paid off 7 years faster would you be able to retire sooner?