There are many advantages to paying off a mortgage loan as quickly as possible. In addition to lifting one of your biggest financial obligations from your shoulders, paying off a mortgage fast can save you thousands of dollars in interest charges. Several different strategies and techniques exist for paying off a mortgage early; five of the very best ones are highlighted below.
1. Shorten the Length of Your Mortgage
The 30-year mortgage is, by far, the most popular home loan product out there today. To be sure, there are many advantages to signing up for a 30-year mortgage; most significantly, your monthly payments will be more manageable. However, you’re going to pay a lot more money in interest throughout the life of the loan. If you’re able to handle significantly larger monthly payments, it definitely pays to switch over to a 15-year mortgage. You’ll pay your obligation off sooner and save thousands of dollars in interest to boot.
2. Increase the Amount of Your Payments
It’s amazing what paying a little bit extra can do in terms of paying off a mortgage faster. Different lenders have different rules about paying more than your usual monthly payment, so be sure to read the fine print before doing so. By paying $100 extra on a $135,000 mortgage, for instance, you can shorten the time that it takes to repay the loan by about eight full years. It’s especially smart to make higher payments during the first five to seven years of a mortgage, since that’s when the loan is interest-heavy. The sooner you make a dent in that interest, the faster you’ll pay off your mortgage.
3. Change Your Payment Schedule
An increasingly popular way to pay off a mortgage more quickly is making bi-weekly payments. Instead of making twelve mortgage payments per year, you make 26 of them. You’ll be paying the same amount each month, but you’ll pay less interest overall. Be careful, though – some mortgage companies charge extra fees for doing this; others apply two separate payments once a month, eliminating any benefits that you might have enjoyed.
4. Refinance to a Lower Interest Rate
If you’re still within the first few years of your mortgage, it could pay to refinance at a lower interest rate. This trick will help you pay your mortgage off faster only if you continue to make the original monthly payment. That way, a higher amount will be applied to the principal of your loan. This may not be a viable option if significant closing costs and other fees are assessed.
5. Make Lump-Sum Payments
Do you receive significant tax refunds, bonuses or other lump-sum windfalls each year? If so, it might pay to apply them toward your mortgage. When doing so, make sure to specify that the extra payment is to be applied to the principal of the loan. On a $135,000 mortgage, an extra lump-sum payment of $5,000 could help you pay off your loan about three years sooner.
Whatever way you slice it, paying off a mortgage as quickly as possible is never a bad idea. By using one or more of the preceding techniques, you can own your home free and clear a lot more quickly.