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I’ve been a homeowner for just over four years now. Since I have no debt other than my mortgage, I’ve been working hard to set aside extra money in my high-yield savings account and make additional payments toward my home loan balance.
There are benefits to paying off your mortgage sooner, if it’s feasible, like saving on interest costs. I’ll share with you how I prioritize paying down my mortgage loan faster while continuing to save for a future home down payment and other essential savings goals.
I do this to save money on mortgage interest costs
I pay my regular mortgage payment every month and then some. I can do this because I was firm about my home-buying budget when I shopped for my current home. While increasing your budget during the home search process may be tempting, that can be a costly decision. Since I have an easily affordable mortgage payment, I can pay extra on my loan.
If you plan to pay extra toward your mortgage, you should apply the additional payments toward the loan’s principal — which means you’ll make payments toward the loan balance, rather than the interest being charged on it. Doing this can save on interest fees and allow you to pay off your mortgage sooner. It can also help you increase your home equity, which can be helpful if you decide to sell your home in the future.
I’ve been making additional monthly payments on my home loan and occasionally make extra payments sporadically throughout the year. I figure any money saved is a win for my wallet, plus if I can get closer to a $0 balance sooner, that could enable me to enjoy greater financial freedom and flexibility — and who doesn’t want that?
I’m saving up for my next home
The home I’m in now is likely not my forever home. When it comes time to purchase a new house, having plenty of savings aside to cover a down payment would be beneficial. Making a sizable down payment means I’ll be able to take out a smaller loan, which will help reduce my monthly expenses. Plus, if I can afford to put at least 20% down, I can avoid private mortgage insurance (PMI) fees.
More: Check out our picks for the best mortgage lenders
In addition to making extra payments on my current home loan, I’m putting more money in my savings account so that someday when I’m ready to buy a new property, I’ll be financially prepared. I set up automatic transfers so money is sent from my checking account to my savings account two times a month without me needing to do anything. By automating the savings process, I save time and I don’t forget to contribute money.
You can tackle multiple financial goals at the same time
While it may seem overwhelming initially, tackling multiple financial goals is possible. You can always start small with two or three goals. To determine what goals are important to you, carefully examine your finances and figure out what kind of life you’re working toward.
Not sure where to begin when establishing goals? Here are some questions to ask yourself:
- Do you want to max out your yearly IRA account contributions so you feel comfortable in retirement?
- Are you looking to become a first-time homeowner in the next few years?
- Do you want to eliminate your credit card debt?
- Would it be beneficial to focus on increasing your credit score?
- Are you hoping to build an emergency fund to cover at least six months of living expenses?
As you begin to work on your goals, seeing your progress can motivate you. Seeing my home loan balance reduce significantly and watching my savings account balance grow is rewarding. You can reach your financial goals, too! Don’t wait to start — now is the perfect time to tackle them. For additional money tips, check out our personal finance resources.
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