Tips to Pay Off your Mortgage Early
Homeowners pay off their mortgage early for a few different reasons: Some want to increase their cash flow or pay less in interest, while others want to enjoy the mentality of being mortgage-free.
If your mortgage does not have a prepayment penalty, here are a few ways that you can successfully pay off your mortgage early-
- Make extra payments. You can do this by paying your mortgage bi-weekly instead of monthly. By doing this, you will make 13 mortgage payments per year, instead of 12. Another option is to pay extra on your mortgage each month. Paying just $100 extra toward your principal each month can help you save tens of thousands of dollars over the life of your loan and help you to pay it off earlier. Just be sure that your lender or loan servicer allows you to make the extra payment toward your principal, and they are not counting it as prepaid interest or toward your next month’s payment.
- Make a lump sum payment toward your principal. Instead-or in addition to- making smaller payments toward your mortgage each month, you can make one large lump sum toward your principal when you’re able. Consider putting a bonus, tax return, or other windfall income toward your mortgage. Once again, just be sure to check with your lender or mortgage servicer that it will be applied toward your principal.
- Refinance your mortgage. With rates as low as they are, you might be able to refinance your current mortgage for a lower rate. With a lower rate, chances are your monthly mortgage payment is significantly lower. But if you continue to make monthly mortgage payments in the same amount, you could cut years off of your mortgage. You could also refinance to a mortgage with a shorter prepayment term. Depending on how much money you still owe, this could increase your monthly mortgage payment, but still decrease the timespan of your loan, helping you to repay your mortgage faster.
- Cut expenses elsewhere and apply them to your mortgage. Whether you’re cutting cable or ditching your expensive gym membership, consider putting the money you save toward your mortgage. Even just an extra $80 per month on a 30-year loan with a 4.5% interest rate can help you save $27,000 on your mortgage and shave almost 3 years off the life of your loan.
So, should you pay off your mortgage early?
It just depends on your personal financial situation. If you have other debt with higher interest, like credit card or student loan debt, then it probably makes more sense for you to focus on paying that off first.
Paying off your mortgage early also should not come at the expense of having a savings or rainy-day fund.
The money that you put toward paying your mortgage could also be used toward other investments, such as your 401k, a 529 College Savings Plan, or Roth IRA plan, all of which also have tax benefits.
The information contained herein (including but not limited to any description of lending programs and products, eligibility criteria, interest rates, fees and all other loan terms) is subject to change without notice. This is not a commitment to lend.
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