Fortunately, there are a few simple ways you can pay our rental property off faster. Check them out below.
Make B-Weekly Payments
Start by making bi-weekly payments. This is simple. Take your mortgage payment and divide it in half. Now make that payment every two weeks. You still make the full mortgage payment every month, so you aren’t going to be late. But, because you pay the mortgage every two weeks, you make 26 half payments through the year. That equals 13 full mortgage payments or one extra mortgage payment each year.
While this doesn’t seem like much, it can knock a few years off your loan’s term. You pay the principal balance down faster, which means less interest, faster equity, and a shorter term. Before you do this, make sure your lender will count the payments as a full payment each month. If they don’t allow this tactic, just pay yourself every two weeks, make the full payment, and make the extra payment once it’s accumulated.
Pay a Little Extra
If you can’t commit to making payments every two weeks, consider paying a little extra toward your loan’s principal each month. Even a few dollars counts but try paying an extra $50 to $100 each month (or more) toward your principal balance.
The faster you knock the principal balance down, the quicker you’ll own the investment property. While it pays to be consistent with this method so that you can see the greatest results, you don’t have to. If you have a month or two that you can’t pay anything extra toward the loan, that’s okay. Just make sure you make the minimum payment in order to stay on time.
Are you paying PMI on your investment property? If you put less than 20% down on the home and took out conventional financing, you probably are paying it. The good news is that you can eliminate it.
If you already owe less than 80% of the home’s original appraised value, just request the elimination of the PMI in writing to the lender. They will evaluate your loan, ensuring that you are current on your payments and that you do owe less than 80% of the value. If so, they will cancel the insurance. There’s no need to refinance your loan or anything – everything else stays the same. Once you eliminate the PMI, consider keeping the same payment, but applying the ‘PMI money’ to your principal.
If you don’t owe less than 80% of the home’s original value, but know the home has appreciated since you bought it, you have one more option. You can pay for a new appraisal. If the appraisal shows a value high enough that you owe less than 80% of the home’s value now, you can request cancelation of the PMI. This will be up to lender discretion, but if your loan is in good standing, you have a good chance.
Again, if you cancel the PMI, apply the extra funds toward your principal balance to pay your loan balance down faster.
Pay 1/12th of the Mortgage Each Month
If you don’t want to pay your mortgage bi-weekly, consider adding 1/12th of your mortgage amount to your payment each month. If you do this consistently every month, you’ll pay an extra mortgage payment every year. By December, you’ll have made one full extra payment.
Again, this extra principal comes right off the amount you owe. This lowers the total interest that you pay and knocks at least a few months, but possibly even a few years off the term of your loan.
Do you receive money for bonuses or tax returns? What about large gifts – such as wedding presents? If you find yourself with a large sum of cash – why not pay your mortgage down? You can pay any amount of the principal that you want at any time. Most loans today don’t have a prepayment penalty, so it won’t cost you more to lower that principal. If anything, it will decrease the amount of interest you owe and get you that much closer to owning your home free and clear.
There are many ways to pay your rental property off faster. Whether you use one or several of the methods, you stand to knock many years off your loan. Once you own your rental property free and clear, you can enjoy the cash flow that it brings in to you.