How to Pay Off Your Mortgage Early

Paying off your mortgage early has some benefits, such as long-term cost savings and lower monthly expenses. If you’re in the process of learning some strategies to pay it off early, or determining if it’s a possibility for you, here are some approaches others have used to do just that. If you have questions about implementing any of these strategies, contact our office and we’d be happy to help you understand how it applies to your specific situation with real numbers.

 

Pay Off Your Mortgage Early Trick 1: Refinance

By refinancing to a lower rate, you can save money over the length of your loan, and even lower your monthly payment. However, if you refinance with a lower rate and/or payment but continue to pay the higher monthly payment you’ve been paying, you can pay off your mortgage early and save even more money. Some people refinance simply to save on the month-to-month mortgage payment, but if you aren’t having any difficulty with the higher payment, continue to make it. For many people, this means they are making an additional $200-$300 more in monthly premium payments, reducing their mortgage by several thousand dollars in interest, while also shaving off nearly a decade of time.

 

Pay Off Your Mortgage Early Trick 2: Use a shorter term

Often when homeowners refinance, they “lose” the time they have already paid into the mortgage in exchange for lower payments. If you have no problem making your current payment, you may want to take advantage of a refinance to a shorter term mortgage. This means that instead of a 30-year, you may want to consider a 15-year fixed. These loans may have a higher monthly payment, but don’t last as long, saving you thousands over the length of the mortgage.

 

Often these shorter loans have better interest rates, if you can afford the higher monthly payment. Consider your age and expected financial position after the completion of a 15-year mortgage versus the 30-year to determine if this is a good option for you.

 

Pay Off Your Mortgage Early Trick 3: Make extra payments

If you don’t want to refinance because you already have the rate and term-length that works best for you, you can also make extra payments on your mortgage in order to pay it off early. Make sure your mortgage doesn’t include a prepayment penalty before making additional payments, and make sure they are properly allocated for reducing the principle on your loan. Some strategies for this include:

 
  • Making a payment more than once a month,
  • Make an additional payment incrementally such as quarterly or annually (such as when you receive a bonus),
  • Round up your payments, indicating the excess go toward principal,
  • Apply income windfalls (gambling winnings, bonuses, inheritance, etc.) towards principle,
  • Refinance to get rid of mortgage insurance and keep payments at the higher amount, and
  • Increase income and use it to pay down the mortgage (sell assets, rent property, take on a second job, etc.).

If you are looking to refinance or even get more information about how refinance can benefit you in your current situation, give one of our professional mortgage lenders a call today. We can help you determine the best option among several, often alternatives you weren’t aware of, to help you meet your financial goals.