Undoubtedly, your house is one of the most expensive purchases you will ever make in your life. So, it comes as no wonder if you dream of the day that monthly mortgage payment is gone for good. Making monthly mortgage payments can sometimes feel like you will be doing for the rest of your life, but with some strategies, it does not have to be. Yes, you read that right! With some easy and hassle-free ways, you can pay off your mortgage faster than before, and fortunately, we have got those ways listed here.
So, let’s have a look at the top creative cost-saving and strategic planning measures that might require a sacrifice or two but will surely help you pay off your mortgage early. But before that, let’s get an answer to the most common question.
Should you pay off your mortgage early?
Before you dive in and think of implementing any of the following ways to pay off your mortgage faster, make sure that paying off your mortgage early is the best financial decision for you. For this, you need to first check with your mortgage company to ensure that they accept extra payments without any fines or penalties. If they accept, make sure you specify that any extra payments are meant to go towards the balance of your principal amount rather than the payment of next month.
If your mortgage company allows you to pay off your mortgage loan early and you have all the financial means in place to do so, follow the tips mentioned below. Without any need to pay for a mortgage accelerator program, the tips below can help you easily do so!
Tips to pay off your mortgage loan quickly
1. Make bi-weekly payments
One of the top ways of paying off your mortgage faster that does not require coming up with extra payment is by making biweekly payments. In order to pay off your mortgage quickly with this option, you have to split your monthly mortgage payment amount in half and send it every two weeks.
By this, at the end of the year, you will have made the equivalent of 13 monthly payments. On a 15-year mortgage, biweekly payments might cut down one to three years from the repayment time, depending on the interest rate and loan amount. But one thing to note here is that not every mortgage lender will accept biweekly payments. Therefore, it becomes crucial for you to ask your lender whether it accepts biweekly payments and how they would be processed. Also, double-check that your lender does not charge any fee to do so.
2. Recast your mortgage
You are probably familiar with the term refinancing, but you may not have heard about recasting your mortgage, right? When recasting a mortgage, you make one large lump-sum payment towards your principal balance. There is a minimum amount of money that is required to recast, and later the lender amortises the loan to reflect the new balance.
In other words, with recasting, the companies re-amortizes the loan, so the term stays the same, but the monthly payment gets lowered on the basis of reduced principal. So, to pay off your mortgage faster with this strategy, continue making your previous payment and applying the extra money towards the principal. It’s important to note that there’s usually a fee required to recast a loan. Also, every lender has different requirements relating to how often a loan can be recast and how much should be put down towards the principal.
3. Refinance your mortgage to a shorter-term length
Another significant way to pay off your mortgage quickly is to refinance your mortgage to a shorter term. To put it simply, refinancing your mortgage is the process of getting a new loan to replace the original one. Refinancing your mortgage loan can help individuals in a couple of ways that involve:
- Individuals can take advantage of better mortgage rates
- Individuals can shorten the loan and commit to higher payments to pay off their debt sooner.
Refinancing a mortgage can allow you to pay off your mortgage early and will also cut your interest costs. In addition to this, it might also eliminate private mortgage insurance, and those funds could later be used to pay off your mortgage principal.
4. Create a room in your budget
One of the most effective ways to pay off your mortgage early is to pay more than the amount due in a month. That might seem pretty obvious, but you might not realise just how far that little extra money can go. Therefore, it is vital to keep in mind that you don’t have to go overboard here and sacrifice other financial goals in order to pay down your mortgage quickly. Well, mortgages are some of the cheapest loans out there, so make sure you pay off other higher-interest debt and invest before you start cutting back in all other areas of your budget.
5. Select a flexible term mortgage
Selecting a flexible term mortgage is the last way in our list that can help you pay off your mortgage faster. While 15-year mortgage and 30-year mortgage are the most common types of mortgages but they are not the only options available. Consider whether or not you can afford a shorter amortisation term. Shorter terms mean less money paid on interest over time. If you are not sure which term to select, an independent mortgage broker can help you determine how short a term you can repay comfortably.
Pros and cons of paying a mortgage early
Pros:
- Paying off a mortgage early holds the potential to save a large amount of money in interest charges.
- Being debt-free can offer you a certain peace of mind and minimize the chance of losing a house in the event of a job loss or other similar event.
- Money that was previously used to make mortgage payments can be redirected to other priority tasks.
Cons:
- Mortgage interest rates are so low that it can make more sense, financially, to invest additional money instead.
- Relying on the fastest way to pay off mortgage balance can draw money away from other necessities like emergency savings.
- Homeowners will lose their mortgage interest tax deduction. So, it can be a better option to pay off other debts before a home loan.
With this, we conclude that your home is the biggest asset, and you can make it more valuable by using the ways above to pay down your mortgage faster. This will help you cut down the amount of interest owed and will eventually slice the years of your mortgage term. But remember to weigh the pros and cons of paying off your mortgage faster as it will help you make a better decision.
Also Read: Pros and Cons of Leasing Property