One of your highest monthly expenses is your mortgage if you’re a homeowner. It can feel like a lot, especially if you pay more than the average person. However, paying off your mortgage can drastically change your finances for the better!
Paying your mortgage ahead of time also reduces the amount you have to pay in interest over the life of the loan.
You can save thousands by taking care of your mortgage early- so don’t wait! Everything you need to know is in the article below.
Start With Additional Payments
First, you can start making more payments toward your mortgage. By paying more frequently, even if it’s a small amount, you cut back on the amount that grows due to interest. That way, you pay less on the total mortgage.
Many people choose to make a single additional payment each month or make another payment every other week.
Which option you choose will have to do with your budget. To do this, talk with your lender to make sure they can accept these additional payments. They’ll help set you up!
Overall, you want to try to make a full additional mortgage payment per year. This process saves you a ton of interest!
The best way is to split your mortgage in half and make payments every two weeks (usually when most people receive their payments from work). If you do this, you’ll make 13 payments in a year instead of 12.
In short, the best way to get through your mortgage early is to make more payments- even if they’re small!
Consider Refinancing
Next, it’s good to consider refinancing your home as another option to pay it off faster. Only refinance your home when you know you’ll receive a lower interest rate or shorter loan term! Otherwise, you’d accidentally extend your mortgage instead.
You will pay an increased mortgage payment each month when you get a shorter loan term. However, if you want to get through your home loan as fast as possible, this won’t be much of a problem.
It’s still essential to ensure your new mortgage will fit into your budget without trouble! You can find plenty of home interest calculators online to help you decide and budget.
With refinancing, you also pay drastically less in interest! Switching from a 30-year term to a 20-year term can save you tens of thousands of dollars. For many people, it’s well worth it!
Finally, make sure you consider the down payment amount when you refinance. While a low down payment is ideal for most, you’ll want to put as much towards it as comfortably.
The down payment comes directly from the mortgage, so anything you pay upfront won’t accrue interest and show up on your monthly mortgage bill!
Pay On the Principal
Putting more towards your mortgage won’t actually help you pay it off faster unless you pay the principal amount. If your lender puts your additional payments towards interest, it won’t lower your monthly bill as quickly.
The principal is the amount you borrowed when taking out your home loan. Figuring out your current principle is simple- just subtract the down payment from the home’s price. Most lenders also make it very easy to see how much you still owe.
Making more payments on the principle will shorten the loan’s length and allow you to build your equity faster. Plus, you’ll make fewer payments over time, allowing you to save money.
Overall, paying on your mortgage principal is one of the smartest things you can do when you want to pay it off faster! Paying on your interest won’t have the same effect, so make sure you know exactly where your additional payments are going.
Try To Modify Your Home Loan
Next, you can try modifying your home loan. These options are usually best suited to those experiencing money problems, allowing them to work with their lender to change the amount they pay each month.
The lender may agree to alter the interest rate or loan term if you’re behind on your payments. You could catch up, although it could damage your credit score. You’ll want to discuss all of your options with your lender before committing to this option!
Modifying your home loan will help you pay it off early to get the lender to agree to a new loan term.
Overall, you should only consider this option if you’re currently having trouble making your monthly mortgage payments on time.
Why Pay Off Your Mortgage Early?
There are plenty of benefits to paying off your mortgage early. It frees up a large amount of money to put towards your other goals.
However, many people do it to secure their homes. You’ll feel safer knowing that you won’t lose your home if you run into money problems later on in your life.
Plus, you’ll have an easier time selling your home if you want to. Instead of the money from the sale going towards your mortgage, it goes into your pocket! You can use it to buy a new home and pay off other costs.
Your house should be worth more when you sell it, making it worth paying off as much of your mortgage before selling.
If you can safely pay off your mortgage early, you should go for it! You’ll want to check that you won’t receive any prepayment penalties, but your lender should be upfront with this information. It’s always a good idea to ask!
Always Budget
To summarize, you’ll want to create a budget that you can stick to. If you’re planning on making a lump sum payment towards your principal or you wish to pay your loan biweekly instead, you don’t want to spread your finances too thin! You should still try to live comfortably while paying off your home in a decent amount of time.
Paying off your mortgage is sure to give you more peace of mind. Making extra payments when you can is a great way to start!