Whether you are paying for a 15 or 30-year mortgage, there is an incentive to pay off your mortgage in less time. A huge benefit of paying off your mortgage is saving thousands of dollars in interest and principal. Also, you can make an addition to your house, or use your home as an investment and purchase another home. Here are some great strategies for paying off your mortgage early.
Should you pay off your mortgage early?
Before you start paying your mortgage off early, it is essential to find out if it is a good idea to do so. If you have significant debt with high interest rates, it may be better to keep your mortgage on schedule. Since a home loan is considered good liability and usually well below most credit card rates, it may be to your advantage to bundle your debt with a home equity line of credit. Also, if you don’t have a reliable backup fund to pay for six months of living expenses, it may be better to pay the standard monthly payment.
Questions you should ask yourself
To make a sound decision about your mortgage you should ask yourself a few questions. Will the lender allow you to pay off your mortgage early without penalty? If they do charge you extra, will that penalty make it worth it to pay it off early? Another question to consider is if putting the extra cash you intend to pay off your mortgage early with toward another debt or investment. If it seems more worth it to pay off a debt or invest in something, it may not be worth paying off your mortgage.
Strategies for paying off your mortgage early
The number one strategy is to refinance your 30-year mortgage to a 15-year mortgage. Not only does this lower the interest rate (which will save you thousands over an extended period), but the house will be paid off a lot faster. Another strategy is to pay your mortgage with a bi-monthly payment. You still pay half of the monthly mortgage, but if you pay every two weeks over a years time you are paying 26 payments, which equals 13 months payments. Just by doing an extra payment once a year, you are saving yourself a lot of time and money.
Another way to pay off your mortgage faster is to put any more significant sum of money you get into the mortgage. For instance, if you get a tax refund, win the lottery, or a big chunk of money in an estate inheritance, use all or a portion of that unexpected money towards your mortgage. The key to any of these investments paid into your mortgage is to make sure the lender applies the money toward the principal and not the interest.
Knowing how you want to deal with your mortgage will give you the strategies you need to pay down your mortgage quicker and owning your home free and clear!