For many homeowners, the idea of paying off the mortgage early is tempting but often dismissed as either not possible or more trouble than it's worth. Unfortunately, many homeowners aren't aware of the choices available for paying down a mortgage to have it paid off early. If you're a new homeowner or you've wondered about paying off your existing mortgage early, here are three ways that you may be able to do just that.
Pay Extra Every Month
Paying extra on your mortgage is probably the easiest method of paying it off early. Remember that the interest you're paying on the loan is based on the current balance of the loan principal. If you pay extra each month, you can often have that extra amount applied directly to the principal of the loan, reducing the amount on which interest is based.
Just make sure that you check with your lender to confirm that your mortgage contract permits those payments to be applied to the principal. Some lenders discourage or prohibit this because it reduces the amount they're eligible to earn on the loan. In those cases, anything extra you pay would be applied to your next month's payment, which won't help.
Also, ask about prepayment penalties. These are fees charged by a mortgage lender simply for paying your loan off early. These fees are typically assessed in an effort to recover what the lender sees as lost revenue from the interest that you would otherwise have paid over the rest of the loan.
Reduce Your Repayment Term
Another option for paying off your mortgage faster is to shorten the actual life of the loan. For example, if you bought your home on a 30-year mortgage, it means that your payments are currently spread over 30 years. You can reduce that repayment term by refinancing your loan to a 15 or 20-year loan instead. This could cut at least ten years from the repayment period, or potentially cut it in half.
It's important to note, though, that by shortening the repayment period, you're increasing the required monthly payment. Talk with your lender about what kind of effect it would have on your payment before you submit the application. If you aren't confident that you can meet those terms easily, you should consider simply paying extra when you can and maintaining your 30-year loan.
Pay More Often
Most repayment schedules for mortgage loans are based on monthly payments. That means you're making 12 payments every year. If you have your payment schedule adjusted so that you're paying bi-weekly, you'll make 26 payments every year, which actually works out to 13 payments a month. That extra month's payment can reduce your mortgage repayment term significantly.Share