Paying off your mortgage early will not only secure the ownership of your house, but will also help save thousands of dollars. Here are a few recommended ways to pay off your mortgage early.
Did You Know?
Opting to give 13 installments of mortgage payment in a year can help you pay off your 30-year mortgage in as early as 22 years.
Many people strive to give off their mortgage early to get rid of the liability and payment of interest. Also, if you fail to make even a single mortgage payment, it affects your credit score. Hence, many prefer to refinance their mortgages or interest rates to get benefit of the market. For example, according to realsimple.com, many people who had their mortgage refinanced in Q2:2012 could decrease their rate by an average percentage of 1.5. Having a financial goal of paying off the mortgage early can be met if you set a target date for payment. You should also be aware about your amortization schedule. Decide that you will pay off your 30-year-old mortgage in 15 or 20 years. You will then have to calculate the extra payment you would require to undertake every month against it and make provision for the same. If everything falls in place and your plan works, who knows you will end up saving a lot of money on the interest. However, you will need to focus on this particular financial decision without giving in to unwanted buying habits. Here are a few more recommended ways to pay off your mortgage early.
Opt for biweekly payments
Ask your loan provider if you are allowed to pay your mortgage payment partially every two weeks. Remember that many loan providers do not allow the facility free of cost, and may charge you with fees or completely deny you to make such payments. However, if your loan provider does allow you to make biweekly payments, you will end up make 26 partial payments, which will mean 13 full payments for a 12-month period. Thus, you will be able to pay off your mortgage early and save some interest cost.
Use the increase in your pay
If you are working for a job that entails regular pay raises, you can utilize this increased income for making payment towards your mortgage. However, this is a workable option for those who have already got a raise; don’t opt for it when your appraisal is near or is yet to happen. You have to be sure about the amount of increase in your gross monthly income that you can contribute towards paying off your mortgage early. You may have to put the plans of getting a new car or home renovation on hold for sometime, but it is definitely one of the most viable ways to pay off your mortgage early. You can check with your loan officer to know more about this kind of provision.
Round up your payments
One of the easiest ways to save several dollars on the interest payment is to round up your mortgage payment to the next whole-dollar increment. You can also round up $5, $10, $25, $50, and $100 based on the amount of payment. Suppose you have budgeted a mortgage payment on $449, then it is best that you round it up to $500. Of course, before doing this, you must be sure that you will be able to afford this additional payment. You can utilize the roundup mortgage payment calculator. This will decrease the term of your mortgage payment drastically, and you will be able to save a lot of money.
Convert your 30-year-old mortgage to a 15-year one
Be on the lookout for interest rates to fall. Once you observe it, immediately opt for refinancing your loan. If you desire to have a shorter loan term and are ready to pay a relatively higher payment every month, then you can refinance your 30-year-old mortgage to 15 years. It will not only reduce the years of payment, but also the amount of interest you will pay for the total loan duration. According to money.msn.com, on a $250,000 worth of loan for a 20-year period, you will end up paying 5% interest, while for a 15-year mortgage, you will have to pay 2.63% interest. This means that you will end up saving a whopping $178,000 on the interest payment. However, remember that if you opt for refinancing your mortgage, you will have to contribute a major chunk of your income towards the mortgage payment every month. Hence, unless you can afford it and do not have any other financial obligations to meet, do not opt for refinancing. Similarly, you can also refinance the interest rates.
Selling your home and buying a new one
One of the recommended alternatives to downsize your mortgage payment is to sell your large home for a sizable amount. You can then buy a comparatively smaller home. This will enable you to make payment in cash without availing a loan or going for a loan of negligible amount. By doing so, you can reduce your mortgage completely or by a considerable limit. This is recommended for people with small families who can exercise the liberty of selling a large home and shifting to a smaller one.
Utilize the Australian method
In the Australian method, interest will be generated on an everyday basis rather than a monthly one. In Australia, mortgages are based as home equity lines of credits (HELOC). They are also utilized as checking account. This means that when you receive a payment, you deposit the check and withdraw the money when you have expenses to be paid. A similar money merge rule is applicable to the mortgages. However, this method is not recommended unless you are a disciplined spender.
Apart from this, if you get some additional money or cash windfall in the form of a bonus or tax refund, try to contribute it towards the mortgage payment. This can also help bring your mortgage down. Also, in order to avoid extra fees that biweekly payments generate, you can opt for making an extra month’s payment each year. There may be no prepayment penalty attached with you making an extra payment.