A large mortgage payment that accounts for 30% or more of your monthly payments can be a huge drain on a budget. This can prevent you from reaching long-term financial goals, such as investing in a portfolio or saving for retirement. And there is no need to mention the interest you will pay on the entire life of the loan. In this article, we will discuss how to pay off your mortgage early.
Paying off your mortgage early can be a worthwhile goal if you plan to stay there long term, but you can make better use of your extra cash if you plan to move forward in a handful of years.
Make an additional payment each year:
Paying an extra month each year will help you pay off your mortgage faster, and you may not miss out on that extra payment. You can try to schedule it for a month when you know you won’t have to deal with other expenses like the winter holidays.
Save a payment:
This approach will need to be forfeited if you want to save on payments. Try to automatically transfer a small amount each month to a savings account as an “Extra Mortgage Payment“.
Use bi-weekly payment tricks Instead:
You can use the bi-weekly payment trick if your lender allows it. Do the math. There are 52 weeks in a year, so every two weeks half of your monthly payment meets 26 half payments or 13 monthly payments. Voila – An additional mortgage payment over 12 months.
Refinance to get better rates:
Another way to pay off your debt early is to refinance your debt to get a better interest rate. Besides, if you can pay less in interest, your monthly payments will be lower, which will allow you to withdraw more cash to the principal of your loan.
Related: How To Get Personal Loans
Pay only $ 1 extra each month:
Another option is to pay an extra dollar each month. It doesn’t look like much, but it will increase over time and you may not even notice this increase in your budget.
The mortgage you pay out in the first years of the rate loan is mostly interest-bearing because the balance of what you have borrowed is high at the moment. Towards the end of a loan, the payment is terminated by the principal because you have lower interest.
Related: 5 Ways To Increase Your Credit Before Applying For A Mortgage
Throw “extra” money into your mortgage:
Think of the times when you received money from “surprises”, such as bonuses, commissions, tax returns, or inheritance. You did not expect this income, so you will already budget and live without it.
You might be tempted to go out on a weekend or spend it on something extra like food, but why not put all the extra money on your mortgage instead? This can potentially cost you years of debt.
- Selling your home for a profit
- Renting out your property to cover the mortgage
Related: How Can I Report My Rent Payments To Credit Bureaus?
Keep track of advance payments:
If you pay off some or all of your mortgage early, you will incur an additional fee. If your agreement includes a prepayment penalty it should be mentioned somewhere in your loan documents. So drag out the paperwork and check the fine print.
The good news is that these fines don’t always apply to the entire term of your loan. But is usually a few days before the end of the year such as through refinancing, if you make an extra significant repayment. Check your loan documents to make sure.
Get a 15-year mortgage instead
A standard mortgage lasts for 30 years, but you can choose a 15 or 20-year loan instead. Your monthly payments will be higher, but your interest rate will be lower. This will save you money because you will pay a lower interest rate for a shorter period until you convert to a higher monthly payment.
Or you can take a 30-year mortgage and just pay a hefty extra as if you have a 15-year mortgage. Your interest rate will be a bit higher, but you will have more flexibility in payment obligations.
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