Are you thinking of paying your mortgage off early? When your interest rate is high, your best bet is to pay off your home mortgage as soon as possible. It feels good to know that debt’s paid off and it gives you that much more extra cash every month. It adds up and you can start putting that money into savings.
But paying off your mortgage early is not an easy task. The amount of your loan plus the interest accrued is always a hefty number. Most of us can’t pull that out of our bank accounts or emergency fund and be comfortable.
We’re going to share with you some ideas about ways to pay off a your current mortgage in ten years by using these expert tips and tricks.
1. Pay a Large Down Payment
You haven’t finished the paperwork on your mortgage yet? There are steps you can take to pay off your mortgage faster than expected before you close the sale.
Put as much money down for your house as you can. Don’t stick to the least amount. The more you put down, the less you need to finance which means lower payments and lower interest rates.
You also don’t have to take the first amount the lender suggests.
2. Pay More than Your Normal Payment
Even if you’re already in the middle of your mortgage term, there are steps you can take to speed up the process.
This is the most obvious tip to pay off a mortgage balance quickly. Pay more than your normal monthly payment every month or whenever you can.
At first, most of your monthly payments only go towards interest. It doesn’t go towards the principal amount of the loan.
Calculate your budget for each month. Then calculate how much you still owe on your mortgage loan, including interest. Figure out how much extra you can put toward mortgage debt without breaking your budget. You don’t want to struggle each month because you’re paying too much.
That extra money adds up fast. But speak to your lender to ensure that the extra money is going towards the principal amount. Otherwise, they might apply it to your next month’s mortgage payment.
Make sure you go through your mortgage contract before you make this decision. Some lenders only let you pay extra at certain times of the year or they have a prepayment penalty. The contract you signed should have these conditions stated.
Don’t waste your money on those companies that advertise helping you pay off your mortgage early. It’s an extra expense for help you don’t need.
Don’t think you can afford extra payments? Try cutting back on your other expenses. Cut anything that’s not a necessity out of your budget. Go out to eat less. Do you need both Netflix and Hulu? There are so many ways you can cut back on money without affecting your quality of life.
Use that extra money every month to add to your mortgage payments. Even an extra $30 or $50 each payment adds up.
3. Pay Bimonthly or Biweekly
You can make your mortgage twice a month instead of once a month. Like with making bigger payments, this extra payment is going to add up. So you don’t hurt your monthly finances, each payment can be half of your normal payment.
A good way to figure out your payments is to find the principal and interest on your monthly statement. Take that number and divide it by two. It’s that easy.
You can even have the correct amount taken out of your paycheck every two weeks.
Keep in mind, some lenders don’t allow half payments. You can always put that money back so it builds up.
4. Pay a Large Lump Sum
Make one extra payment a year or every few months.
Did you get a bonus? Apply it to your mortgage. What if you receive a raise? Use that extra money each paycheck to pay on your mortgage.
Or use your tax refund. That’s a big amount you can throw at your mortgage all at once.
It all depends on what you can afford and your lender’s conditions.
5. Refinance Your Mortgage
Consider refinancing your mortgage to pay it off. This only works if the new loan you’re using has a lower interest rate. It should be at least 1% to 2% lower than your current rate.
A loan with a lower interest rate means lower payments. But stick to paying how much you were on the original mortgage. You can pay off the new loan at a faster rate and save thousands of dollars on interest.
6. Recast Your Mortgage
Instead of refinancing your mortgage, you can choose to recast it instead. This is a little unknown secret in the loan world.
Your ability to recast a mortgage varies from lender to lender. Some don’t offer mortgage recasting and others have strict guidelines you have to mee so you’ll have to check with your lender to learn the specifics.
To recast a mortgage, pay a large lump sum toward the principal of your loan. In most cases, this amount has to be $5,000 or more.
Once this amount is applied to your mortgage, your payments are lower. Since you’re paying a lower amount and have paid off more of the balance, your interest rate drops and your mortgage term shortens, too.
This can also enable you to pay extra each month, depending on your financial situation.
The Bottom Line
Paying off a mortgage early has several benefits. To know that you have less debt to deal with lifts a load off your shoulders. We gave you some of the best tips and tricks to get you where you want to be when paying down your mortgage and working toward long-term financial goals. Now it’s up to you!