Looking for Ways to Pay Off Your Home Loan Ahead of Schedule?
For most homebuyers, the road to fully owning their home is a long one. It’s a road that they will likely travel for about 30 years. This is the standard length of a home mortgage. Many homeowners are happy to pay the monthly mortgage and gradually build equity over that 30 year period.
Another school of thought when it comes to the standard home mortgage is to pay it off early to avoid paying so much interest to the mortgage lender. There are several ways to accomplish an early payoff that will not stress your budget or require you to empty your savings account.
Ways to Pay Off Your Mortgage Early
Make Slightly Increased Payments
Paying off your mortgage early doesn’t have to be financially painful. One of the most popular ways to pay off your mortgage early is to add just a little extra to your monthly mortgage. Adding a mere $50 to $75 to each monthly payment can save you tens of thousands of dollars and shave several years off of your payment schedule. Use this extra payment mortgage calculator to estimate how your increased payments will impact your mortgage. Be sure to contact your lender to ensure that your increased amount will go toward the principal each month.
Make an extra payment
As an alternative to, or in addition to slightly increasing your monthly payments, making an additional payment annually. If you are financially able to, making an additional payment quarterly will save you even more. Making these extra payments will supercharge the speed at which your mortgage is paid off. Once again, check with your lender to confirm that your additional payment will go toward paying down your balance.
Make bi-weekly mortgage payments
Here is another way to hack your mortgage payments in order to pay your mortgage off early. Divide your monthly payments into two separate payments and pay on a biweekly schedule. Doing this reduces the total interest you will pay and speeds up your loan schedule. Basically, you are tricking yourself into easily making an extra payment annually. This can shave off up to 5 years from a 30-year loan schedule and reduce your interest owed by tens of thousands of dollars.
Improve your interest rate
30 years is a long time. It’s likely at some point(s) throughout the life of your mortgage, interest rates will be lower than what you are currently paying. Refinancing your mortgage to lock in a lower rate will almost certainly lower your monthly payment. If you continue to pay your original payment amount, that extra money will accumulate to pay down the interest owed over the years.
Shorten the term of your mortgage
Refinancing your home loan from a 30-year term to a 15-year term is another way to pay it off faster. Doing this will significantly increase your monthly payments. The good news is that you will pay a fraction of the interest over the shorter term. This will save you tens of thousands of dollars. If you are financially situated to take on the increased monthly payment amount, this strategy might be the way to go.
Divert extra funds toward your mortgage
Another way to pay off your mortgage early is to pay extra whenever you have the funds available. This is a good option for those of us that are unable to incorporate increased monthly payments into our budget. Monies from tax refunds, work bonuses, inheritances, etc can be paid to your mortgage in order to shorten your loan term and save money on interest payments.
Should You Pay Off Your Mortgage Early?
There are several things to consider in regard to paying off your mortgage early. Even though there are ways to achieve an early payoff without stressing your budget, there should still be some consideration for other ways those additional funds can be used or invested. Ask yourself if the extra money would be better served by investing it or saving it for a rainy day.
Here are some pros and cons to paying off your mortgage early:
The Pros of Paying Off Your Mortgage Early
- Potentially saving tens of thousands of dollars in interest charges.
- Money is now freed up for other investments
- Have 100% equity in your home.
The Cons of Paying Off Your Mortgage Early
- Loss of mortgage interest tax deduction.
- Draws money away from other necessities such as emergency savings.
- It may make more sense to pay off debt with higher interest rates (car notes, credit cards, personal loans, etc.)
Your home may be your biggest asset. You can make it more valuable more quickly by using these methods to pay down the principal, reduce the amount of interest owed, and slice years off your mortgage term.