Two-thirds of American homeowners had to take out a mortgage to finance their home purchase. If you’re serious about joining the list of debt-free homeowners, then you need to start thinking of ways you can pay off your mortgage early. We all know that mortgage payments can be stressful, especially when you have other major expenses to handle.
So, how exactly can you pay off your mortgage early?
Opt for Biweekly Mortgage Payments
This concept is pretty simple. Instead of making monthly mortgage payments, you start paying every two weeks. That will result in 26 half mortgage payments, which is 13 full-monthly mortgage payments each year. That may seem insignificant, but that extra mortgage payment can knock 8 years off your 30-year loan depending on the interest rate charged for the loan.
Locate your principal amount, interest and tax and insurance fees you pay every month and divide the total by half. That will be your biweekly payment. Find out from your mortgage lender if they accept biweekly mortgage payments. The good news is, popular mortgage options like FHA home loans allow bi-weekly payment arrangements, according to OnQ Financial.
Make Extra Principal Payments
Do the best you can to pay extra towards your monthly principal payment. Every time you do this, you get to save yourself a significant amount of interest charges as well as getting closer to paying off your mortgage several years ahead of the loan term. The most important thing is ensuring that you can do it comfortably without jeopardizing your financial stability.
For instance, if you’re paying $1046 a month, consider adding some extra cash to make it $1100 and dedicate that extra amount as a loan principal payment. Even if you pay just an extra $50 or $100 a month, your principal amount will add up much faster than you would think. Make sure to also check with your mortgage lender before you make additional payments.
Refinance Into a Shorter-Term Mortgage Loan
Have a 30-year mortgage? You could consider refinancing it into a 15-year mortgage. This will blast you through your mortgage loan much faster, and will probably get you a more affordable interest rate, because shorter-term loans come with lower interest rates. An article on how to refinance a home loan notes that those who refinance their mortgage pay a lot less in interest.
To see what savings you’ll make, simply pull up an online mortgage calculator and play around with different numbers to see how much you would have to pay each month for a 15-year mortgage refinance. If it’s affordable, go ahead and do it. If it’s above what you can afford, you can consider a 20-year loan instead.
Put That Extra Cash Into Your Mortgage
If you have an extra source of income, then it’s obvious you should be setting aside that extra cash into paying your mortgage. Many taxpayers get tax refunds at the end each year. If you direct all or part of that cash as an extra mortgage payment, you can make serious progress in getting your mortgage paid off early. Dedicate any windfall: a bonus, holiday or graduation gift or raise you receive towards paying down your loan.
Note that the highest interest loan should always take priority, But if you don’t have an adequate emergency fund, and your mortgage is the only debt you have, then you should be adding any extra money you get to your mortgage payment as additional principal. A Marketwatch article offers some insights into whether to pay off your mortgage or invest that money.
The more cash you put into paying your mortgage early, the less money you’ll end up paying down the line in interest. This will eventually add up to lower mortgage loan payment, making it easier for you to pay off your mortgage early.