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For most people, having a mortgage payment is just a fact of life. But, think of what you could do with your money if you could eliminate that debt earlier!
Here are 7tips on paying off your mortgage early
Add extra money to your payments
Even if you can only add an extra $10 extra towards your principal, try to add any extra money that you can onto your mortgage payment. You can use a mortgage calculator to see what the effects are to the payoff date by adding extra money to your payment.
Be sure to check with your mortgage company to see if you have a prepayment penalty first. Also, check to see how they apply any extra payments. You want it to go towards the principal rather than just extending the due date of your mortgage payment.
If you pay half your mortgage every 2 weeks, you'll end up making an extra payment every year. Check with your bank to see if you can pay every 2 weeks. If not, don't pay a marketing company to set it up for you. You can either just pay 1/12th of your payment extra each month to get the same effect or just make one extra payment per year.
Use any raises or bonuses to pay extra towards your mortgage
If you get a raise, rather than raise your standard of living expenses, add that money towards your mortgage payment. You won't even miss it!
Cut expenses and put the savings toward your mortgage payment
If you are really focused on paying off your mortgage early, you can make sacrifices on optional expenses (like cable, movies, eating out, etc.) and apply those savings towards your mortgage payment.
Consider getting a 15 year mortgage rather than a 30 year mortgage
Compare the payments for both mortgages and decide if you can swing the payments for the 15 year mortgage. If you can, you'll have your mortgage paid off in half the time!
If you don't want to refinance your mortgage, use amortgage calculator to see what the payment would be for a 15 year mortgage and make payments like it's a 15 year mortgage.
Refinance your mortgage
If you have a higher interest rate mortgage, check out the current interest rates to see how much you could save by refinancing. You'll need to weigh any cost savings against any closing costs that you'll have to pay to see if it's worth the expense.
Consider downsizing your home
This one is definitely more difficult, but if you can barely afford your mortgage payment each month, you can sell your house and buy a cheaper home (and then pay extra on that mortgage). Or, if you have lots of equity in your larger home, you can apply that equity towards the new mortgage - possibly even paying for it with cash (depending upon the available equity).
Make sure you have a full emergency fund (3 to 6 months of living expenses) before you pay extra on the mortgage since any extra you pay towards your mortgage will not be available funds for a crisis (and you'll still have to pay your monthly mortgage payment even if you've paid extra in the past if you haven't completely paid it off).
If you have any additional debt (especially with a higher interest rate), be sure to pay that off first before you make extra mortgage payments.
Make sure you have a healthy college and retirement savings before you pay extra. Paying of the mortgage early should be your last debt that you pay off.
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I love the idea of getting a 15 year mortgage instead of a 30. We pay more each month and have refinanced once. It is amazing what paying a little more each month makes.
Reply
Katelin
Thanks for sharing! My husband and I are focused on paying off our mortgage as soon as possible by trying to make extra payments on the principle each month. We also did a 15-year loan as opposed to a 30-year. Looking forward to the day when it is fully paid and we are again debt free. I'm excited for the years when we will not have to pay the largest expensive each month and can instead use that money for things such as travel.
Making extra payments of $500/month could save you $60,798 in interest over the life of the loan. You could own your house 13 years sooner than under your current payment. These calculations are tools for learning more about the mortgage process and are for educational/estimation purposes only.
Paying a little extra towards your mortgage can go a long way. Making your normal monthly payments will pay down, or amortize, your loan. However, if it fits within your budget, paying extra toward your principal can be a great way to lessen the time it takes to repay your loans and the amount of interest you'll pay.
When you pay an extra $100 on your monthly mortgage payment, that entire amount goes to principal. You'll reduce your total balance much more quickly when you make an extra payment that goes directly to repaying your balance. You could cut around four years off your repayment time with just an extra $100 per month.
When you pay extra on your principal balance, you reduce the amount of your loan and save money on interest. Keep in mind that you may pay for other costs in your monthly payment, such as homeowners' insurance, property taxes, and private mortgage insurance (PMI).
Ideally, you want your extra payments to go towards the principal amount. However, many lenders will apply the extra payments to any interest accrued since your last payment and then apply anything left over to the principal amount. Other times, lenders may apply extra funds to next month's payment.
But if you have a relatively recent loan, you're likely looking at tens of thousands of dollars in savings and cutting as much as eight years off the life of your loan. Obviously, not everyone can afford to make two extra mortgage payments a year. You're basically increasing your housing costs by 16%.
Amortization extra payment example: Paying an extra $200 a month on a $464,000 fixed-rate loan with a 30-year term at an interest rate of 6.500% and a down payment of 25% could save you $115,843 in interest over the full term of the loan and you could pay off your loan in 301 months vs. 360 months.
Since your interest is calculated on your remaining loan balance, making additional principal payments every month will significantly reduce your interest payments over the life of the loan. By paying more principal each month, you incrementally lower the principal balance and interest charged on it.
As a general rule of thumb, making one extra mortgage payment per year at the start of your 30-year mortgage can shorten the term by approximately four to five years. You could potentially pay off the mortgage and own the home outright in 25 to 26 years instead of 30.
If your aim is to pay off the mortgage sooner and you can afford higher monthly payments, a 15-year loan might be a better choice. The lower monthly payment of a 30-year loan, on the other hand, may allow you to buy more house or free up funds for other financial goals.
When you refinance your home, you can pay off your home faster by replacing your 30-year mortgage with one that's a shorter term. With a mortgage refinance, you can shorten your loan term by selecting a 20, 15, or even a 10-year loan.
Regardless of the amount of funds applied towards the principal, paying extra installments towards your loan makes an enormous difference in the amount of interest paid over the life of the loan. Additionally, the term of the mortgage can be drastically reduced by making extra payments or a lump sum.
Introduction: My name is Merrill Bechtelar CPA, I am a clean, agreeable, glorious, magnificent, witty, enchanting, comfortable person who loves writing and wants to share my knowledge and understanding with you.
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