How To Pay Off Your Mortgage Before It Is Due

How To Pay Off Your Mortgage Before It Is Due

Tips For Paying Off a Mortgage Early

Do you have a strong desire to be mortgage-free? A relatively small number of Americans fully own their home. Many other people will have some equity in their home, with a mortgage making up the difference. An estimated two-thirds of homeowners are in this situation, paying interest to their lender every month.

While you can spend many years gradually paying down your home loan, the advantages of paying off a mortgage early will help your financial future.

If you want to pay a mortgage off early, there are many options. Becoming debt-free is possible more easily than you might imagine. Let’s take a look at the ways of getting rid of your mortgage early.

Are You Able to Pay Off Your Mortgage Early?

Your lender might have some rules that mean you can only pay extra towards your mortgage at certain times. Paying extra outside of those times could lead to prepayment penalties. Check what the rules are with your lender before you start making extra payments. Most lenders today don't have pre-payment penalties, but it is worth checking first. In fact, this is something to find out before you get approved for a mortgage. There should never be a penalty for paying down or removal of a mortgage.

You also need to make sure your extra payments go towards paying down your loan's balance and not just paying next month’s payment sooner. This might mean that you need a note added to the payment indicating it's to pay the principal balance.

You might have heard of a mortgage acceleration program to help pay off home loans sooner. However, you don’t need a program like that to pay the mortgage off early. You can do it yourself using the methods we are going to show you.

See also: Mortgage Lenders that do not Require Tax Returns

Making Payments Every 2 Weeks

One of the easier ways to pay off a mortgage early is bi-weekly payments. Instead of paying your mortgage once per month, you could pay half of your monthly payment every 2 weeks. This results in 26 half payments or 13 full payments, which is one more mortgage payment each year.

While this might not appear to make much difference, it really does. Making 13 payments a year on a 30-year mortgage could take 8 years off your loan term. The exact amount of time that will be cut will depend on the interest rate you’re paying.

How to Pay Your Mortgage Every 2 Weeks

The first thing you need to do is work out how much you need to pay. Find the principle and interest amount you normally pay and divide it by 2. You can then pay this every other week, and it shouldn’t be too much of an additional strain on your finances.

Remember that you still need to pay the right amount of tax and insurance. Add that to your mortgage payments as well.

Will your lender accept this payment plan? They might not, and if not, you can deposit these payments into a new bank account and pay the normal monthly payments from that. You can also do this if they will accept payments but charge an extra fee.

You can then make the extra payment when you have enough in your new account, and it is allowed by your lender.

Paying Off Your Mortgage Early

As you can see, even one additional payment makes a large difference to the length of the loan. And the fewer years you are paying your mortgage for, the less money you will waste on interest.

Making More Payments

If you can make an extra payment every quarter, you could cut the time you pay interest by more than 10 years. The saving you can make when making more payments does depend on the terms of your mortgage.

Making Small Sacrifices

If you can cut your spending every day in small ways, you could use this money to pay off your mortgage quicker. If, for example, you save money every day by not buying coffee or not paying for lunch at work, putting this money towards your home loan will make a big difference.

Say you spend $3 a day on coffee on average. This adds up to $90 per month. Using this money to pay off the mortgage early could save you between $20,000 and $30,000 in interest and could have the loan paid 3 to 5 years earlier.

Renting a Room

If you have a large enough home, some people love the thought of renting out a room for extra cash. They will turn around and put all of these funds toward the mortgage's principal balance each month. As long as you have a tenancy at will agreement, you'll be able to have the tenant leave within 30 days if you tire of having someone sharing your house.

Downsizing You Home

If you have more space than you really need, downsizing your home could help you get rid of your mortgage completely. Buying a smaller home with the larger home's profits will reduce your debt, making it easier to become mortgage-free.

It may be a fairly extreme step to take, but it will certainly work, saving you many thousands in unnecessary interest payments.

Act As If You’ve Refinanced

Refinancing your mortgage means paying closing costs once again, though you could get a lower interest rate. If you already have a fairly low-interest rate on your mortgage, pretend that you have reduced the number of years it runs for.

If you have a 20-year mortgage, act as if it is a 10 or 15-year mortgage instead and adjust your payments accordingly. Increasing your payments, if you have the income, will allow you to reduce the amount of interest you pay massively.

Before You Buy A Home

If you don’t already own a home and are looking to buy, there are some things you can do to reduce the time it takes to pay off your mortgage.

One important point is to make sure you are financially strong enough to afford the home you want. Ask yourself the following questions:

  • Do you have any debts?
  • Do you have at least 3 months of emergency funds available?
  • Will monthly payments be less than 25% of your income?
  • Do you have the money to pay closing and moving costs?
  • Can you pay the ongoing utilities and maintenance costs?
  • Does your financial situation allow you to take out a 15-year fixed-rate home loan?
  • Do you have a decent down payment amount ready?

Ideally, you should have 20%, but at least 10% will help you get a better interest rate from lenders. Though 20% will make sure you don’t have to waste money on paying private mortgage insurance, which could be 1% of the loan value.

Paying more upfront does mean you will have less to finance as well. This leads to lower monthly payments and an easier route to becoming mortgage-free.

Getting Help When Buying

An experienced real estate agent should help you find a home that meets your requirements and your budget. They might even help you find a home before it’s listed on the market, allowing you to make an offer before anyone else.

Your buyer’s agent can also help negotiate a better deal that could reduce how much you spend. This can all add to helping you be free of your mortgage faster and saving you a ton of money on the interest.

Hopefully, you have found the information on paying off a mortgage early to be useful.

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