Even though a majority of Americans believe owning a home is a wise investment*, it doesn’t mean they want to pay for it longer than necessary.
After all, just think about what you could do with the money that would have gone to your mortgage if you were to pay it off early! You could build savings, tackle home improvement projects that build equity, purchase a vacation home, or maybe retire earlier.
Whatever your reasons might be, if you’ve come to the conclusion that paying off your mortgage early would benefit you, here are four routes you can take.
1. Make Extra Payments to Principal
Making extra payments to your principal balance can help shorten the length of your mortgage loan.
By applying extra payments to principal, you could reduce the amount you owe on your mortgage and reduce the amount of interest owed over the life of your loan.
It is important to keep in mind that some lenders charge a prepayment penalty, or an early payoff penalty, so talk to your loan officer before deciding on this option.
Even just paying a little extra each month could save in interest while shaving time off of your mortgage!
2. Refinance to a Mortgage Loan with a Shorter Term
The option to refinance your mortgage to a new term is common. Lower-term mortgage programs typically allow for lower interest rates, which reduce the amount of interest paid monthly and over the life of the loan.
3. Make Bi-weekly Payments
Paying half of your mortgage every other week adds up to 13 full monthly payments at the end of the year. Before making bi-weekly payments, check with your lender to see if there are any fees associated with this payment method.
4. Make an Annual Lump Sum Payment
Applying an annual large lump sum payment to your principal every year, such as a tax refund or a bonus at work, could have a dramatic impact on the life of your loan.
Read your mortgage documents or contact your lender to find out how often you can prepay your loan without penalty. If you have yet to choose a lender, be sure to ask all potential candidates about their pre-payment penalty policies.
The Bottom Line
Pre-paying your mortgage can open up new avenues of opportunity for a homeowner. Before making any extra payments to your mortgage loan, be sure to check with your lender to see if there are any pre-payment penalties or fees you should be aware of.
Still not sure if paying your mortgage off early is right for you? Contact Wyndham Capital Mortgage today to discuss your options!
*Wyndham Capital Mortgage commissioned Atomik Research to run an online survey of 2,342 adults in the United States for their Mortgage 101 survey. The margin of error fell within +/- 2 percentage points with a confidence interval of 95 percent. The fieldwork took place between March 23rd and March 29th, 2021. Atomik Research is an independent creative market research agency.