4 Simple Ways to Pay Off Your Mortgage Early
Two-thirds of American home buyers take out a mortgage loan to purchase their dream home. As buying a home is a huge investment, it may be unavoidable for homebuyers to buy a home without taking a home loan. However, it is advisable for home loan borrowers to try paying off their mortgage as quickly as their financial condition allows them to do so. If you too have a home loan, or are planning to take one, here are a few tips to help you pay off your loan early.
1. Refinance to a lower interest rate
Borrowers with fixed-rate mortgage should always keep an eye on the prevailing interest rates. In case there is an interest rate drop, take advantage of the situation and refinance your existing loan to reduce your monthly mortgage payments. If you can, you should use some, if not all, of the savings and put it toward extra principal payments each month. This will speed up your repayment.
2. Refinance to a shorter loan term
Alternatively, if there is an interest rate drop and you can keep your monthly payment close to the same amount, refinancing your existing loan to shorten the term of your home loan is a great idea. For example, going from a 30 year mortgage to a 20 or 15 year mortgage. Many times borrowers who could not afford a higher monthly payment during the initial days of borrowing find it advantageous to switch to a loan with a shorter term and higher monthly commitment, later in order to pay off their home sooner.
3. Pay lump-sum amounts
Whenever you receive any lump-sum amount, such as through a tax refund or inheritance, use that amount to pay a part to chip away at your outstanding mortgage principal balance. That is, if you don’t have any other important commitments to tend to first. One important thing to note here, however, is that even though almost all of the newer mortgages were rid of prepayment penalties, if you have an older mortgage loan you may want to check the terms of your mortgage note before paying off too early .
4. Make additional payments each month
There are companies out there that offer to “pay” your mortgage payment bi-monthly, for a fee of course, in order to help pay off your mortgage sooner. Do not fall for this trick! You can do it on your own. You can achieve the same goal by taking the cost of one extra mortgage payment, dividing in by 12 (for 12 months in a year), and apply that amount towards principal each month. For example, if your mortgage payment is $1,200 a month that would be an additional $100 each month to principal. It may seem little, but over time it could shave off 5-10 years of your mortgage.
Can’t afford the additional principal payments right now? What about just rounding up your monthly payment? So instead of $950 a month pay the additional $50 in principal. If you think rounding up your monthly payment and increasing them by $20 to $50 will not make much of a difference, you would be surprised to know that rounding up your monthly payment of $954.83 To $1000, can help you pay off your debt two years and five months early. The earlier you pay off, the more money you can save on interest.
Use our Monthly Payment Payoff Calculator
To find you how much can you save by making higher mortgage payments, use our monthly payment payoff calculator. In case you have an existing loan and want to pay it off early, or need help choosing the right term for a home loan, get in touch with one of our home loan experts today.