Deciding to pay off your mortgage early is a decision that takes weighing where and when you are investing your money, and if there is indeed a pay off. If you’ve come to the conclusion that it would benefit you to pay off your mortgage earlier, here are 5 routes you can take.
1. Make additional payments
Adding extra money to your mortgage payment every month will shorten the length of the loan. Getting a copy of your loan amortization schedule will help you understand interest and principal. Any additional money should be added to the principal of the loan. If adding a large amount every month is not feasible, it is a good idea to round up payments. If your payment is $744, most borrowers think of it as $750, so why not just pay $750 every month? Paying an additional $6 a month, will save you several payments at the end of the loan.
2. Refinance to a shorter-term mortgage
The option to refinance your mortgage
to a 10, 15, or 20 year mortgage loan
is common. Payments will be higher than on a 30 year loan but will reduce the life of your loan dramatically. Making payments as if you have a 10 or 15 year mortgage loan
while taking out a 30 year loan takes away the risk and puts the borrower in control. Lower term mortgage programs typically allow for lower interest rates, which will reduce the amount of interest you’re paying throughout the term of the loan.
3. Make Bi-weekly Payments
Making biweekly mortgage payments takes advantage of th
e fact that there are 52 weeks in a year and 12 months. Paying half of your mortgage every other week adds up to 13 full monthly payments at the end of the year. The extra payment can decrease a 30-year mortgage
by six years. Some banks will change payment arrangements free of cost, while others charge.
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 will greatly affect the life of your loan. Read your mortgage documents to know how often you can prepay your loan. Also remember to ask when you are shopping for a mortgage if there are any penalties for prepaying.
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