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5 Ways To Pay Off Your Mortgage Early
Would
you like to shave a few years off of your home loan?
Most homeowners dream of the day they make their final
mortgage payment. Make that day come a bit sooner
by paying off your home loan early. Whether you pay
off your mortgage years sooner than scheduled or only
a few months, any amount of time will save you money
in interest payments.
Here are a few strategies for being mortgage free early. Find the one that best fits you and your budget.
- Make an extra mortgage payment each year.
Many of these tips center around paying extra principal
on top of your scheduled monthly mortgage payments.
When you put extra money towards principal you are
lowering the amount you have to pay interest on
for the rest of the time you have the loan. This
means an extra payment now does much more than just
eliminating one payment at the end of the loan.
Just how much you'll save will depend on your current
mortgage rate, the amount of time left on your loan,
and the loan amount. Run the numbers with our extra
payment mortgage calculator to see what the
savings will look like in your scenario.
Pick a date that works for you and make that extra
payment every year. You could make it a New Years
resolution, a birthday present to yourself, or to
celebrate the anniversary of when you bought the
home. When you make the payment include a note that
you want the entire amount applied towards the outstanding
principal.
- Select a biweekly payment schedule.
Pay half of your mortgage payment every two weeks
rather than the full amount once a month. Because
there aren't an even four weeks per month you'll
end up making an extra payment each year. This strategy
doesn't require the discipline that coming up with
an extra payment all at once does, but unfortunately
some lenders will only allow it if you enroll in
their biweekly mortgage payment which can come with
additional fees.
- Shorten your loan term.
If you are serious about paying your mortgage off
early you may want to consider refinancing into
a shorter term loan. A ten, fifteen, or twenty year
mortgage will leave you mortgage free years sooner
than a traditional thirty year mortgage and will
generally reward you with a lower interest rate
as well.
Consider current
mortgage rates, the fees associated with refinancing,
and what the payment would be on a shorter term
loan to decide whether this option is right for
you.
- Pay a little extra each month.
Tacking on some additional amount to each mortgage
payment will add up to significant interest savings
in the long run and help you pay off your mortgage
early. As the biweekly mortgage payment schedule
you don't have to come with an entire extra payment
at once, and it's less likely you'll incur any fees
this way. (Check with your mortgage servicer to
be sure.) Be sure to note that you want to apply
the extra amount to principal.
- Make a large one time payment.
Unexpected extra money perhaps as inheritance, a
bonus at work, or a tax refund could be a great
opportunity to pay down a good chunk of the principal
on your mortgage.
With a little discipline and strategy you could be celebrating that final mortgage payment sooner than you think!
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