PAY OFF YOUR MORTGAGE YEARS EARLIER

If you have a mortgage, you might have PMI. PMI, or “private mortgage insurance” protects the bank if something hfappens and you can’t pay. Certain types of loans require this and set different sets of rules. My FHA mortgage, for example, said I had to have it for at least 5 years and until my mortgage was paid off to at least 78% of the value. “And” is the key word. I would be able to drop PMI once I had paid it for 5 years and paid off my loan to the right amount… and had no late payments. For me, PMI was a lot of money–money that went to some obscure insurance company to protect a multi-billion dollar bank… from me. Doesn’t seem like a productive spend, does it? So, with the money I saved canning, growing, fixing, and saving, I overpaid my mortgage every chance I got. My short-term goal: to drop PMI. My long-term goal: to pay that thing off way sooner. And here’s what I discovered… what they don’t tell you.

You have to request to have PMI dropped.

I only know this because I kept calling customer service when I thought I’d paid off enough of my loan. Here’s how to get rid of PMI:
  1. Pay off enough principle to qualify. In my case, my loan had to be paid down to 78%.
  2. Have a good payment history. I had to have 12 on-time payments. All my payments are on time. But in this case, if even one was over 30 days late, PMI would’ve stayed on the loan.
  3. Tell the customer service rep to start the process of removing PMI.
For me, removing PMI saved $211/month. This is a decent chunk of change–$2422 per year.  If I didn’t “request it be removed” they wouldn’t have removed it for another two and a half years. I would have spent over $5000. Taking that same $211 and leaving it on my mortgage payment as an additional payment to principal, along with the additional $840 I needed to pay to get to the “magic level” to drop the PMI shortens my mortgage by nearly 6 years, saving me over $20,000 in interest alone. Mortgage math is really incredible when you get down to it. It’s fun to do “what if” mortgage math. For example, I discovered if I doubled up my payments (for example, if my husband and I each pretended we were responsible for the mortgage), our mortgage would be paid off in 5-7 years. We can’t swing that, but there are other tricks as well.

Tricks to paying off your mortgage faster

Get rid of PMI
PMI isn’t serving you. It’s going to an insurance company to give the bank money if you don’t pay. I think the bank has enough money, don’t you? Make it a goal to know the magic number where you can drop your PMI.
Pay extra toward principle
Round up your payments. I always made mine the next round number higher–whether it’s to the next 25, 50, or 100, you won’t miss a few dollars by rounding your payment up. It’ll look cleaner on your budget sheet and the extra goes to knocking down your loan.
Pay one extra payment a year
This seems like a lot of money but it knocks down your loan time by a lot, especially if you start doing this early in the mortgage.
Pay every week or every two weeks instead of once a month
Most people pay their mortgage monthly. But, there are some months with five weeks. By scheduling your mortgage every two weeks or every week (around pay day) you’ll actually squeeze in nearly an extra two payments over the course of a year. That’s no joke. It cuts down the time of your loan significantly.
Put half your bonuses, tax refunds, or any money that comes in toward principle
It’s easy to blow a stipend, bonus, or tax refund. Decide ahead of time that a certain percentage will go toward your mortgage first. Put a note on it so it goes to principle.
Decide ahead of time, then stay disciplined
I spoke with Dave at Wells Fargo who said people call him all the time with “what if’s.” They’re excited to pay down their mortgage but they ask him about a hundred scenarios–at great length. Do this. Decide one of two things. Either decide on an extra amount you will pay then find out how much that cuts down your loan, or set a mental deadline as a new payoff date. If I want to pay off my loan in 5 years, I’d have to pay XX each month. Know that, and make it happen. If it’s too much of a financial stretch, then maybe I have to take 7 years. Be realistic, but stay disciplined.
“Run on one”
We had some big financial disasters which took out a salary. I made the promise when a salary came back we’d run on one salary. The extra would go to debt reduction. Running on one salary wasn’t easy, and at times it was frightening to impossible, but as we stretched to pay down debt it got easier. Then, when the second salary came back, it could go to debt and mortgage reduction.