Most of us make at least one mortgage payment every month. It’s not one of our favorite things to do, but we do it so that we can continue to have a place to live. Those of us with rental properties probably make a mortgage payment every month for each property.
This week, I learned of a painless way to pay off your mortgage—one or many—early. According to Kristen Berman, co-founder of Irrational Labs (a behavioral economics company), one simple hack can help you pay off your mortgage up to eight years early. That’s right. One simple behavioral twist can save you thousands of dollars in interest on your mortgage…painlessly.
Would you like to know what it is?
Round your mortgage payment up to the nearest ten dollars and instruct the bank to apply the rest to principal. I can pretty much guarantee you won’t feel the difference in your cash flow, especially if you make your payments automatically. You make the change once, and it increases your net worth and saves you money going forward until the mortgage is paid off. Just by rounding up to the nearest ten dollars, you can pay your mortgage off at least eight months early. If you round up to the nearest $25 or $50, you can save even more.
Think about it. If your mortgage payment is (like one of mine) $2000.72, paying $2010.00 is a negligible difference—less than the cost of a bacon cheeseburger combo at Dairy Queen. Yet it could save thousands of dollars.
What I really like about this hack is that you already think this way. If I asked my friends what their mortgage payment was, they probably wouldn’t say, “$613.86,” like I did. They’d probably say something more reasonable, like “$615” or “$620.” Our brains are wired to round.
To me, this hack is better than setting up an automatic transfer to your savings account because you can’t sabotage yourself by spending your savings on—okay, necessities—later on. Even if you run onto hard times and have to stop paying extra somewhere down the road, the money you’ve already paid down continues to reduce the amount of interest you pay every month. Until the mortgage is paid off.
The sooner you implement this strategy, the more money it can save you!
Now seriously, when was the last time you heard of a financial tip that can save you money and help you lose weight at the same time?