subject: Paying Off a Mortgage Early [print this page] Paying Off a Mortgage Early Paying Off a Mortgage Early
A growing trend is homeowners paying off their mortgages before they are due. By making advanced payments, and getting rid of the mortgage burden, people have better choices in how they want to live financially. Not only are their advantages to paying less interest by making early mortgage repayments, but freeing up that money monthly can have a huge impact on quality of life. The relief of not having the mortgage burden can have long term health benefits. And entering retirement without the debt of a mortgage is a goal of many homeowners.
By saving early and making a large down payment and making extra payments along the way, homeowners can pay off their mortgages in as few as 5 years. For most it takes longer, but even cutting a few years off the terms of the repayment can have huge benefits.
Five Options for Quicker Repayment
There are many options for ways to make repayments more quickly. Here are five ways to get started:
1. Make a Large Down Payment: One of the best ways to be able to pay off a mortgage sooner is to make it smaller to begin with. By making the biggest down payment you can afford, you reduce the principal and most importantly the interest. Start saving as soon as you can and put whatever extra money you can into the down payment. This also helps save on the need for loan insurance.
2. Make Extra Mortgage Payments: By making a mortgage payment every fortnight, instead of monthly, homeowners end up making thirteen monthly payments by the end of the year. The money you pay goes toward the balance which in turn ends up lowering both the principal and the interest. Doing it this way, you pay half your monthly mortgage payment every other week. Another option is to consider dividing the cost of one month's mortgage payment by 12 and adding the difference to each month's payment. At the end of the year you'd perhaps only be adding $100 or so each month to your payment but would be ahead by a full payment by ears end.
3. Add Extra to the Payments: Consider choosing a set amount of extra money add to your mortgage payment each month. For example, cut out additional non-essential items from your budget and put that toward your mortgage. Even $50 extra each month from cutting out coffee shop coffee or dinners out will add up to $18,000 over the course of a 30 year mortgage. That could equal close to a year off of the mortgage payments. Another method is to round up the payment. For example if the monthly mortgage payment is $1750, pay $2000 instead. That could be like two extra mortgage payments per year and could cut a 30 year mortgage to about 26 years.
4. Use "Surprise" Money Wisely: Perhaps an inheritance from a deceased loved one or a bonus from an employer comes your way. Since this money isn't something you were planning as part of your budget, plan to put that money toward your mortgage payment. By using this extra money wisely, you can save on your mortgage payments and repay it much more quickly.
5. Watch Interest Rates: Whenever interest rates drop, consider refinancing your home loan with your lender. The money you can save with a reduced interest rate can go a long way toward repaying the loan more quickly. Keep in mind that the fastest way to reduce the duration of the home loan in this instance would be to keep making the mortgage payments you are used to, rather then the reduced rate that the refinance may have created.
