10 Hacks to pay off your mortgage faster.
One of the most expensive payments you will make every month is probably your mortgage payment. So I’m going to talk about up to ten hacks that you can use to pay off your mortgage early and save a lot of money. Save up to $300,000 in your lifetime of your payment. So let’s get right into it.
How to pay off your mortgage faster and earlier so you can save big. One of the very important things you have to remember about mortgage payments is that when you purchase a house, let’s say you’re buying a house for $500,000 and you put zero down just as an example, you are paying a lot of interest on any mortgages, your mortgage interest over 30 years. And if you refinance a couple of times, your interest payment could be as much as your purchase price.
That means if you buy a house for $500,000 and if you get a loan for 6% and in case you refinance again or one or two times in your lifetime, you may end up paying almost $500,000-$600,000 just in interest rate. So the house that you bought for $500,000 actually ended up costing you a million dollars.
1.) So hack number one to save on your mortgage payment or to pay it off early is to make biweekly payments. Basically what that means is instead of paying oncea month, you are paying every two weeks. Now you don’t take as an example, if you have a mortgage of $3,000, you don’t pay $3,000 twice a month. You divide that by two. So you take your $3000 and you pay $1,500 on the first of the month as an example and you pay $1,500 a month on the 15th of the month. So now you’re making two payments.
With this system, what’s happening is because you are paying $1,500 on the first and another $1,500 on the 15th, you’re saving the interest accrued on the day that you are paying earlier. So every month over 30 years you are going to save so much on interest payments because you accrue less interest on the early days that you pay every month. The other thing that happens is because when you make one payment a month you only have twelve payments. But when you make biweekly payments you end up making an extra payment every year. In this case, you may end up paying $3,000 payment every year versus twelve payments. You’re making 13 payments.
So that alone saves you a lot of interest. So by paying biweekly, you end up paying a lot. I’ll give you an example. On a house that has an interest rate of $500,000, if you have 5% interest rate, your payment interest alone is $2,083.33 plus an additional principal of $600.78.So that means you are paying almost $2,100 a month in interest and $600 a month in principal from your first month. So in a sense, over 30 years, if you don’t refinance and if you keep the house for 30 years, you will end up paying $466,278 just in interest payments. Now, let’s say you paid biweekly and as an example, you end up with a 25 year mortgage versus a 30 year mortgage because you paid extra. And this is just an example, it’s not exact numbers, but it will give you a frame of reference on how much you will save. So now if you take the same $500,000 at 5%, and let’s say you end up paying 25 years instead of 30 years, then your total interest payment that you made will be $376,885 versus $466,278. So you save almost $100,000 because you paid off five years earlier using biweekly payments or other system. So, huge savings. I hope you can do it. I do it myself. And a lot of my clients that I suggested use the same system. Of course, some of the lenders don’t allow this. So you may want to check with your bank or your lender to see if you can do this or not.
2.) The second hack that you can do to pay off early is very simple, especially if you make it automated. So let’s say instead of making twelve payments, you make 13 payments. And you might say, oh, wait a minute, if I have a $3,000 a month payment, as an example, I don’t have the extra $3,000 every monthor every year to make that payment. So what I’ve shown other people do, and I Know a lot of other people do, is as an example, take your $3,000, divide that by twelve. So if you take your $3,000, divide it by twelve, it comes out to $250. So if you make an additional payment of $250 a month, which is a lot better than one time pay of $3,000, and hopefully you have auto payment or you’re paying it by credit card, and I’ll talk about paying by credit card, what is the advantage, is that by paying the $250 extra every month, you’re, in a sense, paying one extra payment a year of $3,000. And that by itself will save you a lot of mortgage over the years, because every year you’re paying less interest charges on that extra payment that you’re making. So let the numbers work for you. They are small numbers, but the small numbers add up.
As far as saving goes, just like you might think, hey, what’s 5%? Well, 5% over 30 years on a $500,000 loan payment is $466,000. So in the same sense, if you pay $3,000 a month or $10,000 a year extra on mortgage, even if you save $100-$300 every month on interest charges because of extra payment, it’ll go a long way, maybe up to $100,000 saving. So think about small increments. By making small payments, you’re saving a lot of interest every month. And you don’t see that, but you’ll see the fruits of the extra payments over the 20-30 year period. So extra payments every year orevery month goes a long way.One thing to note though, if you do make extra payment, let’s say in this case you are paying $250 extra every month, do make a note somewhere in your payment if you have a comment section or let the banks know that the $250 is going towards your principal. That is very important. And let your bank know or when you make that check or that auto payment, make a note on that.
3.) The third hack to save big on interest payment and to pay off your mortgage early is to pay off your other high debts that you mighthave earlier before making your principal or extra payments. So let’s say you have a house mortgage payment of $3,000 and let’s say it’s 5% as an example. But you also have a car which you bought and you bought used and when you bought it you paid %7 or 8% for whatever reason. So what the suggestion is that, instead of making extra payments on the house, you may want to make those extra payments on the higher mortgage debt that you have.
Let’s say you have a credit card and you’re paying 14% or 15%. These days because of high inflation, June 2023, credit cards are charging up to 20% to 25%. So if you can pay off those 20% to 25% debt or 8% debt, anything that you have that’s higher than your mortgage payment, pay that first. Once that is paid off earlier, and let’s say you are paying $250 to pay off your car. Now the car is paid off after two years or three years of extra mortgage payment. Now take the $250 pay off towards your mortgage because it’s better to pay off your mortgage extra $250 a month on a 5% than something that is lower. So it’s better to pay off your mortgage on an 8% debt or a 10% debt versus a 5% debt. So pay off your higher debt payments first and then once you start saving on that or you don’t have those payments, make the extra payments on your house mortgage.
This will go a long way. Again, small payments, extra payments goes a long way. Every time you make an extra payment, you’re saving extra interest. It’s the interest that kills you or increases your payments.
4.) The other hack you can do, and I know some friends who actually did this, is to increase your income. If you have a business, you can do some different things to increase your business. But let’s say you are working, or you and your spouse are working and you’ve been there for a long time, as you know that you do get pay increases. Hopefully you get a pay increase. But the best way and the fastest way to get a pay increase is to switch your jobs to a different company. I’m not saying you should do that, but it’s something you want to consider. If you’re making $100,000 and your company is raising two or 3% a year and if you go to another company, they may give you a 10% raise.
As you know, right now a lot of the people are not working, so a lot of companies are looking for workers, a lot of people are switching jobs. The best way to increase your income is to switch jobs and get a higher pay. Now, once you get that higher pay, let’s say you’re making $100,000 and now you’re getting $120,000, you may want to take that $20,000 and try not to spend that or use that $20,000 to pay off your debts. And hopefully one of the debts that you can pay off is your house mortgage payments. So the best way to increase your mortgage payment, extra payments is to switch jobs or increase your salary or income.It could be just talking to yourmanager and asking for a raise.A lot of the people that I know or,a lot of people are so comfortable at the work, are scared to talk to their managers. But hey, take the bite, ask for an increase.If they don’t ask for it, if they don’t give youthe increase, maybe you want to switch jobs, time to get that pay raise that you deserve, instead of 4%, you may deserve a 10% raise, ask for a bonus, et cetera.
5.) This hack is similar to increasing your pay by switching jobs or asking for pay raise or getting your business. If you’re self employed, getting more income is to do a side hustle. Let’s say you’re in a position where you cannot switch jobs because you are set over there. Your spouse works, so there’s no way you can move out. You are so comfortable at that company, you’re waiting for a pension in the company, so you want to work five more years. Totally understand if you cannot switch jobs. In this case, if you want to pay off your mortgage earlier or want to make extra payments, do a side hustle. I have a Realtor in my office. When the times got tough, she was selling homes. She was 60 years old. And guess what she started doing when Uber and Lyft came out? She immediately took that job. She worked in the evenings. She went to LAX and the convention centers. And on holiday, she worked extra and made extra money. She made up to $2,000 a month when they first came out. So you can go to Uber. You can go to Lyft. You can do a part time job in the weekend, go to McDonald’s, work at Starbucks.
I’m just giving you an example. If you want to make money, remember the person who strive and works hard and has focus and has goals. In this case, you have a goal to pay off your mortgage early, save on interest, become rich when you retire, have your house paid off when you retire.You may want to get that part time job at Home Depot, maybe working 10 hours a week. Other things you can do is if you’re working from home, if you have a hobby painting or doing some crafty stuff, make those and sell on Etsy. You can make extra money if you’re a graphic designer or a coder or anything internet related, computer related. You may want to go on fiverr, or you may want to want to go on upwork and have do some extra work. So even if you make $100 a month, $200 a month, $500 a month, you can use that money. Of course, you have to pay tax and everything else, but in general, you can use that to pay off your mortgage or high debts so that you can start paying your house mortgage.
Sorry to say that, but it’s something that you may want to do. I remember back 25 years ago when I was looking for a business. I had some money. I had just sold the business, and I was looking for another business, so I did not have a job. So I work two part time jobs, having money in my bank.I was working in a hotel doing desk clerk job.Here I am with a bachelor’s degree, an engineer,had money saved up to buy another business. And I knew it would take me three or four years to find a business. So I worked part time as a desk clerk at a hotel, and then I also worked part time at 711. I actually cleaned the parking lot on 711. It was shameful, but I worked at it, and I had extra money, even though I had some money stashed up saved in my account, because I Didn’t want to use that savings money. So I was creating extra money while I was looking for a business. After that business was successful, I sold that business and started real estate. And here I am talking about real estate, but that extra hustle goes a long way.
6.) The other hack on saving on your mortgage payment is to charge everything on your credit cards and get those rewards points and cash value.I have a Costco credit card, and everytime I use it, I get money back. I get rewards. I’ll give you an example. I just sold a commercial property to this gentleman who owns nine different businesses, and he told me that he charges everything on his credit card.He has a black American Express, andhis total charges every month is $300,000. That means he makes a minimum of $300,000 points or rewards money every month. He just went to Dubai or Qatar for that soccer tournament that just happened, the World Cup. It was in Qatar a few months back. He said it did not cost him anything, but because he charges everything on his credit card up to $300,000 per month, so on average, over $3 million, he goes on a vacation using his points. So I’m not saying you can charge up to $300,000 a month. But if you charge as much as you can on your credit card and get those rewards and cash back money, that extra payment you can use for your vacation money or something else so that you don’t have to take out that hard cash money and you can use that hard cash money that you saved towards your mortgage payment. Now, a word of caution is that if you charge it on your credit card, remember, the credit card rate can range from 15% to 20% to 25%.
So if the credit card rates are high, and if you start charging everything on your credit card for your personal things and your business things, make sure you pay it off at the end of 30 days. Because the last thing you want to do is create another interest charge on your credit card. So to get your cash rewards, your points that you can use later, you have to pay off your credit cards before the end of the month or before the interest starts accruing on it and charging you. But this is a great way to do it. I started doing that a while back. I’m only charging a few things on my credit card, but I know that I can charge more things. I charge my gas, my food and everything. But I need to start paying my credit cards and other bigger car bills, etc. on my credit cards if they allow that, which I’m going to do tomorrow.
I know it sounds easy when I say, well, save money, use your credit card, charge everything, save on expenses, pay extra. How do you do that? That’s very difficult. I totally understand because I’m in the same situation. Well, one way to do that is to create a budget. Like everything else, you have to have a plan, you have to have a strategy, you have to be organized, you have to have future goals. So if you have $3,000 a month in mortgage payment, then you have health insurance andyou have gas bills and you have kids school expenses, you have maintenance expenses. If you have association fees, you need to create a budget. And once you create a budget which includes your food, your entertainment, your shopping, your medical bills, your maintenance, your savings account, your 401K, whatever, then once you create that budget, try to stick to it as much as possible.
Of course, everything is not in our control. Things could go wrong. You could have an emergency roof leak. I have a roof leak myself. Actually not a roof leak, but my deck has been leaking. And finally, tomorrow is a sunny day. The repair guy is coming tomorrow and fixing it. He has given me a rate of $5,000 to fix it. We have not been able to fix it because it’s been raining for the last four weekends. You know, California had rain after such a long time and we had a lot of rain, so we’ve eased those drought. But aside the point, I have the extra $5,000. So that’s an emergency money, which I had budgeted out.
So make a budget, stick to it. Have an emergency fund on the side because anything can happen. But by sticking to a budget, don’t go over it. So this way, you control your expenses, you control your savings, and anything that you can save can go towards your higher debt payments and hopefully towards your mortgage payments. Save sooner, the better.
7.) The next hack has nothing to do with saving money or saving expenses. The next hack has to do with not refinancing. I know that of course you want to refinance if you have a high mortgage rate, if you have 7% or 5% and you’re getting two and a half percent like last year, it may be worth it for you to refinance. But I have a friend, my neighbor here, who lives five down the street from me, in the last ten years he has refinanced seven times. Yes, seven times. Which means that ten years ago, if he kept his payment, he only has 20 more years to go. But because he refinanced last year, which is almost year number eight, after year number eight, he’s starting his clock again. That means that year eight, he has paid eight years of payment, mostly interest. Remember on a $3000 payment that I gave you in the first hack, almost $2000 was going towardsinterest and only $600 was going towards the principal. So when you refinance, several things happen.
Number one, you start your clock, 30 year clock, again from the 8th year in my friend’s example. So that means he paid for eight years. Now he refinanced. So now his payment jumped to another 30 years. So in a sense he has a 38 year mortgage payment. Not a great idea.
Of course he will save on the less payments because his rates drop, but still you start in the clock for 30 years. So only refinance if you have to. Sometimes, even if it drops 1%, it may not be good for you to refinance. Talk to your accountant or your lender to see what’s best for you to do. Your goal by saving your mortgage payment is twofold. One is to pay it off faster. So when you retire, or after 50 years, when you’re 50 or 60 or 70, whatever age you are, you don’t want to have a mortgage payment. So the goal is to pay off faster and sooner and to pay less mortgage. By refinancing, you’re adding 30 years every time you refinance and adding more interest on it because you’re clocking it more and it’s going to take you longer to pay because now you’re paying for 30 years versus you only paying for 20 years if you did not refinance. So only refinance if you have to. Talk to a professional, work out those numbers to the detail to see what’s best for you. Banks will not tell you that by refinancing it will cost you more in the long term because you might have additional closing costs, additional fees, appraisal fees and all this extra hassle that you have to go through.
So little things add up, just like paying little mortgage payment extra add up. The next hack in saving is to make sure that if you don’t put a 20% down, let’s say a lot of the consumers buy with a three and a half percent down or 5% down or 10% down. You are aware, I’m sure, that if you put 20% down, lenders do not have the PMI payments, which is the private mortgage insurance that can be anywhere from one hundred and fifty dollars to three hundred dollars, up to five hundred dollars per month depending on your loan amount. So if you got a three and a half percent loan, FHA loan, government loan, you may want to get to payoff that first 20% as much as you can. So get to that 20%, pay off as fast as you can so that you can start saving that PMI payment. So let’s say you got a three and a half percent mortgage rate, so you have a 17% down payment difference to 20%.
So pay that extra faster and faster to get to the 20% so that you will stop your PMI payments. And then once those are over, you can take that same PMI payment. Now you’re not paying and pay towards your extra mortgage payments and extra principal that goes a long way.