How To Pay-off Your Mortgage Early
You may already have an amazing mortgage rate or refinanced recently but wouldn’t it be great to pay off your home sooner rather than later?
Here are 5 easy steps to help you achieve a payment free home in less time
than you thought possible!
1. Pay a little extra every month. But first, check with your lender.
Each time you pay extra on your mortgage, more of each payment after that is applied to your principal balance. Check with your mortgage company first. Some companies may apply a pre-payment penalty and others may only accept payments at certain times.
Include a note on your extra payment that you want it applied to the principal balance, not to the following month’s payment.
Bi-Weekly Mortgage Payments
The concept of a biweekly mortgage payment is pretty simple. You make half of your mortgage payment every two weeks. That results in 26 half-payments, which equals 13 full monthly payments each year. That extra payment can knock years off a 30-year mortgage, depending on the loan’s interest rate.
If your lender isn’t open to biweekly payments, open a new bank account exclusively for your mortgage payment. Deposit your half-payment every two weeks and use that money to make your full mortgage payment (either by check or automatic payment) on every second deposit.
Every dollar you add to your regular payment each month puts a bigger dent in your principal balance—and you don’t have to double-down to make a difference. Adding just one extra payment each year knocks years off your mortgage!
2. Make an Extra House Payment Each Quarter
You’ll end up paying off your mortgage years earlier than expected! Again, check with your lender to make sure they allow this and will not charge a pre-payment penalty.
3. Refinance—Or Act Like You Did
You can refinance a longer-term mortgage into a 15-year loan. Or, if you already have a low interest rate, save on the closing costs of a refinance and simply pay on your 30-year mortgage like it’s a 15-year mortgage. The same goes for a 15-year mortgage. If you can swing it, why not increase your payments to pay it off in 10 years?
Downsizing your house could be a drastic step, but if you’re set on getting rid of your mortgage for good you may want to consider selling your larger home and using the profits to buy a smaller, less expensive home.
With the profits from selling your bigger house, you may be able to completely pay cash for your new home. But even if you have to get a small mortgage, you’ve succeeded in reducing your debt.
5. Maximize Your Down Payment
Plan to put at least 20% down. If it’s under 20% you will end up paying private mortgage insurance (PMI). PMI typically costs between 0.5% and 1% of the loan amount annually. For example, on a $1,000,000 sale price with 15% down, your PMI will cost you about between $290 - $550 a month (depending on other factors such as loan-to-value ratio, credit score,etc…). Why give the bank extra money each month if it doesn’t pay your mortgage down faster?
Keep in mind that the more cash you put down initially, the less money you’ll need to finance. That adds up to a lower mortgage payment each month, making it easier to pay off your mortgage early.
If you want to get serious about paying off your mortgage quickly, check out this mortgage payoff calculator. It will help you estimate how quickly you can pay off your home.
With these helpful tips you will be able to be free and clear of your mortgage years before you thought it was possible!