How to Shave 10 Years Off a 30 Year Mortgage

Posted on January 6th, 2014


Many first time home buyers opt for 30 year mortgages because it allows them to pay their mortgages over many years, which results in smaller monthly payments. A monthly mortgage payment can make a huge dent in your finances so making smaller payments often makes sense. Many home buyers don’t realize how much interest they’re paying over 30 years. What originally sounded like a good idea often results in the buyer paying 2-3 times the purchase price at the end of the 30 years. If paying off your mortgage early sounds appealing, read these tips on how to shave 10 years off a 30 year mortgage.

Set a Goal for Paying Off the Mortgage

Now that you’ve decided you don’t want to be making mortgage payments for 30 years, set a goal for a target date. For instance, if you decide you want to shave 10 years off your 30 year mortgage, determine how much you’ll have to pay each month to have it paid off in 20 years, as opposed to 30 years. In addition to setting a target date, determine exactly how much extra you can afford to pay each month in addition to your regular mortgage payment. There are many online payment calculators that can help you determine how much you’ll need to pay.

Consider Refinancing

Although you may be comfortable with your current mortgage terms and payment amount, is it possible you can now get a much better deal? Many home owners opt for 30 year mortgages because the payments are substantially lower than with 15 year mortgages. They often overlook 20 year mortgages, which can help you not only pay it off earlier but can also save you money in the long run. Your monthly payment may be higher but you’re saving a bundle in interest by paying 20 years versus 30 years. Interest rates have decreased drastically in recent years. If you have good credit, you may eligible for a low interest mortgage that will save you interest without increasing your payment very much. Don’t be afraid to shop around and find the best deal. Banks and lenders are usually eager to take on new mortgages and offer good terms to customers with good credit.

Consider “Dollar a Month” Method

Many homeowners who are struggling to make their mortgage payments each month can’t imagine paying any more than they are already paying. They seldom realize that paying an additional dollar each month can shave years off a 30 year mortgage. To prove this point, Nationwide Bank used the example of an individual who was making $900 a month mortgage payments on a $150,000 loan that was offered for 30 years at 6% interest. This method doesn’t involve paying just $1 extra each month but increasing the amount $1 each month. For example, the payments go as follows: $900 in first month, $901 in second month, $903 in third month and so forth. Using this method, approximately eight years can be knocked off your 30 year mortgage. Just imagine what you can do with more than $1 each month?

happy moves How to Shave 10 Years Off a 30 Year Mortgage

Pay Extra Each Month

Paying extra each month often sounds much easier than it is, especially for homeowners with large mortgage payments, for growing families or for those struggling financially. This is the most straight forward way to shave years off a 30 year mortgage. Unbelievable as it may sound, many new home buyers don’t really look at the fine print in their mortgage documents. All they’re familiar with is their purchase price, interest rate, monthly payment and the knowledge that they’re in their dream home. They’re actually shocked when they discover how much of their mortgage payment is actually interest.

Get an Accelerated Payment Schedule

While monthly mortgage payments are paid twelve times a year, you can actually shave ten years off your 30 year mortgage by making biweekly payments rather than monthly payments. Since getting their money is usually a banker’s main concern, they’ll probably be willing to work with you to set up a biweekly payment schedule. Because of the fact that some months have five weeks, you’ll make an extra payment each year. With the principal you’re decreasing, you’re also decreasing the interest you pay, allowing you to shave off ten years easier than you think.

Pay On Your Principal

Another misconception among inexperienced borrowers is that it doesn’t matter where your money is applied, as long as it goes towards the mortgage payment. Always designate that any extra money you pay, above and beyond the mortgage payment, be applied to principal as opposed to unearned interest. The principal is the amount that you initially borrowed. Do not assume that any additional money is going towards the principal. Some banks put it in an account called “unapplied funds”, while others apply it towards unearned interest, so make sure you either send in the money separately or include a note designating where the money is to be applied.

Having the bank send you monthly statements allows you to keep track of your account and ensure the money is correctly applied. Online banking can also allow you to monitor your account after each payment has been applied. Keep in mind that the amount of interest your loan accrues is based on the principal amount. Each time you decrease the principal, you’re also decreasing the amount of interest you’re paying. If you plan to pay a certain dollar amount each year, you may want to pay it each month rather than one lump sum per year. The reason for this is because some banks compound interest on a monthly or even a daily basis.

Shaving years off your mortgage can be more than just a pipe dream for you. All it takes is commitment and a little dedication. Most people think they can’t afford to send in any additional money until they actually sit down and go over their budget. They often find many areas where they can save a couple dollars – dollars that can go towards providing a mortgage free life much sooner!

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 How to Shave 10 Years Off a 30 Year Mortgage

Dan Spaulding

Home owner for 10 years. I can make Minute Rice in 58 seconds.
 How to Shave 10 Years Off a 30 Year Mortgage

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