Great Tips To Pay Off Your Mortgage Early
January 27 2016 Posted by Guriqbal Chahal, MBA, PMP
Are you looking for ways to speed up paying off your mortgage? Most mortgages are taken out for 15- to 30-year periods. However, this shouldn't stop you from paying off your mortgage early if you come into the extra money. This means that you'll want to figure out what you can afford while still being able to pay off the loan early if possible.
The following are some really helpful ways that you can pay your mortgage off early:
- Refinance your mortgage - You can save a decent chunk of money by refinancing your mortgage if the interest rate drops at a significant enough rate and you have a fixed-rate mortgage. How does it work? Basically, you're taking out a second loan in order to pay off your first loan, which means that the terms of the second loan have replaced those of your first. If the interest rate drops by a single percentage point, you could end up lowering your monthly payments by a couple of hundred dollars. Of course, the actual number you'll save depends on how big the loan was and what the new interest rate is compared to the old interest rate. In some cases, refinancing your mortgage won't be worth it since you won't save that much money on a monthly basis - and the loan period resets. So if you are refinancing your 30-year fixed rate mortgage two years in, you'll end up taking 32 years to pay off your loan when all's said and done. The advantage of refinancing, though, is that you can take the money you are saving every month and apply it to your mortgage payments, thereby paying it off sooner. One thing to keep in mind is that some lenders may charge a penalty for paying off your mortgage early - so be sure to ask about this before refinancing to make sure the penalty is worth the trouble.
- Pay extra every month - If you have a fixed-rate mortgage, then you'll have to make the same payment every month for the duration of your term. However, there's no reason why you can't pay more than this. Paying an extra $100 or $200 a month for the duration of your loan can help you save money on interest as well as help you pay your loan off early. However, if you get to the point where you can pay a substantial amount more every month on your 30-year mortgage, you may want to just consider refinancing to a 15-year mortgage.
- Make payments twice a month - Mortgage payments are required once a month, but that doesn't mean that you are limited to only making that single payment a month. By simply splitting your monthly payments in half and paying them every other week, you can end up paying your 30-year mortgage off four years early. This is because you'll end up making 26 mortgage payments a year, which is equal to 13 months - one more month than is required, and it shouldn't affect your budget by much since you're just splitting your regular monthly payments into two. Not only will you end up paying a little extra towards your loan every year, you'll also end up saving a ton of money in interest payments, all of which combine to contribute to being able to pay off your 30-year loan in roughly 26 years.
- Make large one-time payments - There are times where you may get a large influx in income, whether it's because you've inherited some money or received an end of the year bonus from work, just to name a few examples. Making a few large one-time payments, you can end up saving tens of thousands of dollars in interest while also paying off your mortgage a few years early. Some lenders may even be willing to lower your monthly payments after you've made a large one-time payment as well - just be sure to ask your lender if they are willing to do this before you take out a mortgage.
By using these tips you can reduce the amount of interest you'll pay over your mortgage term, and be debt free sooner!