Tips For Paying Off A Mortgage Early
One of the biggest financial responsibility a person can have is a mortgage. While it is a loan that has the lowest interest rates in terms of other financing, it is also one of the longest you’ll be required to make payments on each month. An early mortgage payoff, if permitted, is a great way to save money not only on the loan but also for your monthly budget once paid off. You can then redirect the amount of the mortgage payment to put into savings or to pay off other debts.
Here are several options for paying off a mortgage early:
Overpay Each Month
If you can afford to add a little extra to your payment each month, do so. Add an extra $100 or send in a 10% addition with your payment. Over time, you will start to see the difference your extra cash brings to the table. Essentially you are making one or two extra mortgage payments a year. If you can afford to continue sending in an extra percentage for the long-term, set up an automated payment plan to make making the payments even easier.
Bi-Weekly Payments
Instead of paying the lump sum in one monthly payment, you can actually get ahead by sending in half of the amount of your monthly mortgage payment every two weeks. This adds up to one extra payment each year. You can calculate the math to see for yourself. Paying monthly means you are making 12 payments a year but if you make them by weekly, you are making 26 payments a year (52/2 = 26/2), averaging out to 13 monthly payments. This method may also help your budgeting situation in relationship to your paychecks. Before adopting this practice with your own mortgage, contact your lender to see if it is permitted. While many lenders are okay with bi-weekly payments, they will also charge a fee.
Mortgage Refinance
If you are in a good place credit rating-wise, you might find now to be a prime time to refinance the remaining balance of your mortgage for a shorter term. If you had a 30 year term the first time around, look for a 15 year term. This may increase your mortgage payment and you will incur closing costs again but you’ll also be able to pay off your 30 year mortgage years faster than before.
Pay Ahead The Principle
Take a look at your mortgage statement and find out the exact cost of the principal you are paying each month. Your mortgage payment is made up of other costs like interest, taxes, and insurance so make sure you find the principal amount only and then add this to your monthly amount. You’ll pay for next month’s principal this month and so on down the line. If you can afford it, this method will super speed up your repayment time and when the time comes that you are only paying the principal on the loan, you see your balance reduce in no time. This method can be difficult to achieve on a long term basis because of the potentially high payment amounts each month but if you are in the financial position to do so, speak with your lender first.
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