For most people making one monthly mortgage payment is challenging enough. Why in the world would you want to make an additional one? Seems like that extra mortgage payment would be pushing the monthly budget a bit too far.
Well, if you can see the bigger picture, the money you put towards an extra mortgage payment now can have significant impact on your long-term financial health. The more you pay and the earlier you pay it will reduce the amount of interest you owe over the life of the loan. You could be looking at tens of thousands of dollars saved in the long run.
If you don’t believe me, run your own numbers on any online mortgage calculator. You’ll be amazed on how much you can save.
Making an extra mortgage payment each month (or even a partial payment) takes a strategy. More importantly, it takes extra money. That’s where the real problem lies. When you look at your monthly budget you may be left scratching your head wondering where that extra money is going to come from.
Back when my wife and I decided to pay off our mortgage early, we faced the same problem. Here are the ways we came up with to free up some money to make that extra mortgage payment.
Funding an Extra Mortgage Payment
Step 1: Build a Solid Foundation
For starters, before you can realistically put additional money towards the mortgage, you have to take care of a few bigger issues first. I wouldn’t try making an extra mortgage payment until I had these three things in place first:
- All other non-mortgage debts are paid
- 3-6 months of emergency cash saved up
- Regularly saving for retirement
As you can see, all three of these are short-term goals. The mortgage is a long-term goal, one that could take up to 30 years to pay depending on the type of loan you’ve secured. You’ll experience a greater sense of accomplishment and set yourself up for success if you tackle these short range goals first.
And the great thing is, once your other debts are gone and the emergency savings account is fully funded, you can divert the money you used to pay into those towards your mortgage.
It may take you years to pay off the debt and build your savings account. That’s fine. I wouldn’t mess with the extra mortgage payment until you have those things accomplished.
Analyze, Adjust and then Attack
Once you are ready, funding that extra mortgage payment will take a multifaceted approach and some discipline so that you can be making routine extra payments. Sure you could sell some stock investment or have a garage sale and put that extra money towards the mortgage. Those are one off events though and, while they help some, they don’t really help you build the pool of money you’ll need to attack the mortgage consistently.
To really be effective in knocking out your mortgage you’ll want to make paying more a habit. To do that you’ll need to analyze your financial status, make adjustments in a few key areas and then commit to stick with it.
Again, from our own experience, this is the route my wife and I took. We…
Step 2: Cut some expenses
You’ll only be able to go so far with this. You can’t cut everything out of your monthly budget. But I’m almost sure there are a few items in there you could adjust and spend less on.
Our biggest one was cutting off DirecTV. Ouch…that was a painful one. But we saved around $1,000 per year during the time we were paying off our mortgage by not having that service.
There are all kinds of ways you can spend less. You may not find enough to fund an entire extra mortgage payment but every little bit helps. If you are serious enough about getting rid of the mortgage you’ll be fine with the sacrifices you’ll have to make.
Step 3: Produce More Income at Work
You might not think it possible to produce more income from your day job. However, you need to explore this option. Ask your employer for overtime or some additional responsibilities that could bring in some more income.
Or if you want to go the route my wife did, you could make a career change and get a new job altogether. She transitioned from being a high school math teacher to a CPA during the time we were paying off our mortgage. It wasn’t easy but we knew the career move would bring in significantly more money. It did and we used some of her increased salary for our mortgage.
Related: How to Choose a Career: 6 Steps for Making the Right Choice
Step 4: Produce Additional Income on the Side
Making income on the side is another piece of the puzzle to help fund that extra mortgage payment. Some in the personal finance world call this type of income “side hustle” income. In other words, it’s money you make on the side (apart from your day job).
This may sound challenging and you might not know where to start or feel like you have the time. Our side hustle became rental real estate. We were able to purchase a few rental properties at rock bottom prices during the last housing crash. The money we made from those went towards our mortgage.
While rental real estate may not be for you, there are many opportunities though to earn side hustle income. In fact, David Carlson – blogger at Young Adult Money – has just written a new book called Hustle Away Debt that takes you through the whole process of earning money on the side. He’s got some great ideas in there to stimulate your thinking.
The big thing to keep in mind with side hustles is that they are not forever. They are for a short period of time where you are intensely focusing on a financial goal – in this case paying extra on the mortgage. Once the goal is completed, you can easily give up your side hustle.
These are the four steps we took to pay off our mortgage quicker than our loan term specified. In the end, we saved thousands of dollars of interest. To us that made the sacrifices worth it. It simply didn’t make sense for us to pay the interest if we didn’t have to.
Questions for Discussion: How often do you make an extra mortgage payment? Do you even think it is worth it? Why or why not? Have you ever had side hustle and if so, was it effective in helping you reach a goal?
I am mortgaging my townhouse in San Juan and I think this would greatly help. Thank you for sharing.
When you look for a broker, think about size of brokerage, its reputation and additional training offered. Check broker reputations by reading online comments, asking friends and neighbors who they’ve had experiences with and getting advice from your instructor on choosing a brokerage.
I’d always thought that having a mortgage was just a normal part of life. Now, two years away (and a whole lotta sweat!) from paying off our mortgage and I’m so excited about the prospect that I could jump up and down on Oprah’s couch 🙂 These are solid tips, and we’ve used all 4 of them to our benefit. Particularly #1 & 2.
“…a normal part of life…” I agree Janeen. And I think many people think the same way about car payments…that you are just always going to have one. We are buying another car in a couple of months and will pay in cash because we’ve been saving for the last two years.
This is what I need now to make a full payment for my mortgage, Brian. Thanks for sharing. I’d surely cut some expenses.
You bet Jamie! The more you pay now the less you’ll pay later.
Here are some other calculators to reinforce this point: https://www.yourmoneypage.com/home/index.php
Thanks Mark…that’s a helpful resource.