How to pay off your mortgage before it expires
Tips for paying off a mortgage early
Would you like to be mortgage free? A relatively small number of Americans own their homes completely. Many other people will have some equity in their homes, with a mortgage making up the difference. It is estimated that two-thirds of homeowners find themselves in this situation and pay interest to their lender every month.
While you can spend many years gradually paying off your mortgage, the benefits of paying off a mortgage early will help your financial future.
If you want pay off a mortgage early, there are many options. Becoming debt free is easier than you might imagine. Let’s take a look at ways to get rid of your mortgage early.
Can you pay off your mortgage early?
Your lender may have rules that mean you can only pay extra for your mortgage at certain times. Paying extra outside of these hours could result in prepayment penalties. Check the rules with your lender before you start making additional payments. Today, most lenders don’t have prepayment penalties, but it’s worth checking out first. In fact, it’s something to find out before you do get mortgage approval. There should never be a penalty for paying off or canceling a mortgage.
You should also make sure that your additional payments are used to pay off your loan balance, and not just to pay off next month’s payment earlier. This may mean that you need a note added to the payment stating that it has to pay the principal balance.
You may have heard of a mortgage accelerator program to help you pay off your home loans sooner. However, you don’t need a program like this to pay off the mortgage sooner. You can do this yourself using the methods that we are going to show you.
Make payments every 2 weeks
Bi-weekly payments are one of the easiest ways to pay off a mortgage early. Instead of paying your mortgage once a month, you could pay half of your monthly payment every 2 weeks. That translates to 26 half or 13 full payments, or one more mortgage payment each year.
While that doesn’t seem to make much of a difference, it really does. Making 13 payments per year on a 30-year mortgage could take 8 years off the life of your loan. The exact time that will be reduced will depend on the interest rate you pay.
How to pay off your mortgage every 2 weeks
The first thing to do is figure out how much you have to pay. Find the principle and the amount of interest you normally pay and divide it by 2. You can then pay this amount every two weeks, and it shouldn’t be extra strain on your finances.
Remember, you always have 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 those payments into a new bank account and pay the normal monthly payments from there. You can also do this if they accept payments but charge extra fees.
You can then make the additional payment when you have enough in your new account, and this is authorized by your lender.
Prepay your mortgage early
As you can see, even an additional payment makes a big difference in the length of the loan. And the fewer years you pay off your mortgage, the less money you will waste on interest.
Make more payments
If you can make an additional payment quarterly, you could reduce the interest payment period by more than 10 years. The savings you can achieve by making more payments depend on the terms of your mortgage.
Make small sacrifices
If you can reduce your daily expenses slightly, you could use that money to pay off your mortgage faster. If, for example, you save money every day by not buying coffee or paying for lunch at work, putting that money into your home loan will make a big difference.
Suppose you spend $ 3 a day on coffee on average. This adds up to $ 90 per month. Using that money to prepay the mortgage could save you between $ 20,000 and $ 30,000 in interest and could cause the loan to be paid off 3 to 5 years sooner.
Rent a room
If you have a big enough house, some people like the idea of renting a room for extra money. They’ll turn around and put all those funds into the mortgage principal balance every month. As long as you have an all-you-can-eat rental agreement, you can get the tenant to leave within 30 days if you tire of seeing someone share your home.
Reduce the size of your house
If you have more space than you really need, reduce the size of your house could help you get rid of your mortgage completely. Buying a smaller home with the profits from the larger home will reduce your debt, making it easier to release your mortgage.
This can be a pretty extreme step to take, but it will definitely work, saving you thousands of unnecessary interest payments.
Act like you’ve refinanced
Refinancing your mortgage again means paying closing costs, although you might get a lower interest rate. If you already have a low enough interest rate on your mortgage, pretend you’ve reduced the number of years it runs.
If you have a 20-year mortgage, instead act like it’s a 10- or 15-year mortgage and adjust your payments accordingly. Increasing your payments, if you have income, will massively reduce the amount of interest you pay.
Before buying a house
If you don’t already have a home and are looking to buy, there are steps you can take to reduce the time it takes to pay off your mortgage.
An important point is to make sure that you are financially strong enough to buy the home you want. Ask yourself the following questions:
- Are you in debt?
- 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 for closing and moving costs?
- Can you afford utilities and ongoing maintenance fees?
- Does your financial situation allow you to take out a 15-year fixed-rate mortgage?
- Do you have a decent down payment ready?
Ideally you should have 20%, but at least 10% will help you get a better interest rate from lenders. Although 20% guarantee you won’t waste money on pay for private mortgage insurance, which could represent 1% of the loan value.
Paying more up front also means you’ll have to fund less. This leads to lower monthly payments and an easier way to get mortgage free.
Get help with purchasing
An experienced real estate agent should help you find a home that meets your requirements and budget. They can even help you find a home before it goes on sale, allowing you to bid before anyone else.
Your buyer’s agent can also help you negotiate a better deal that could lower your expenses. All of this can help you get off your mortgage faster and save you a ton of money on interest.
Hope you found the mortgage prepayment information useful.
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