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For most people, having a mortgage payment is just a fact of life. But, think of what you could do with your money if you could eliminate that debt earlier!
Here are 7tips on paying off your mortgage early
Add extra money to your payments
Even if you can only add an extra $10 extra towards your principal, try to add any extra money that you can onto your mortgage payment. You can use a mortgage calculator to see what the effects are to the payoff date by adding extra money to your payment.
Be sure to check with your mortgage company to see if you have a prepayment penalty first. Also, check to see how they apply any extra payments. You want it to go towards the principal rather than just extending the due date of your mortgage payment.
If you pay half your mortgage every 2 weeks, you'll end up making an extra payment every year. Check with your bank to see if you can pay every 2 weeks. If not, don't pay a marketing company to set it up for you. You can either just pay 1/12th of your payment extra each month to get the same effect or just make one extra payment per year.
Use any raises or bonuses to pay extra towards your mortgage
If you get a raise, rather than raise your standard of living expenses, add that money towards your mortgage payment. You won't even miss it!
Cut expenses and put the savings toward your mortgage payment
If you are really focused on paying off your mortgage early, you can make sacrifices on optional expenses (like cable, movies, eating out, etc.) and apply those savings towards your mortgage payment.
Consider getting a 15 year mortgage rather than a 30 year mortgage
Compare the payments for both mortgages and decide if you can swing the payments for the 15 year mortgage. If you can, you'll have your mortgage paid off in half the time!
If you don't want to refinance your mortgage, use amortgage calculator to see what the payment would be for a 15 year mortgage and make payments like it's a 15 year mortgage.
Refinance your mortgage
If you have a higher interest rate mortgage, check out the current interest rates to see how much you could save by refinancing. You'll need to weigh any cost savings against any closing costs that you'll have to pay to see if it's worth the expense.
Consider downsizing your home
This one is definitely more difficult, but if you can barely afford your mortgage payment each month, you can sell your house and buy a cheaper home (and then pay extra on that mortgage). Or, if you have lots of equity in your larger home, you can apply that equity towards the new mortgage - possibly even paying for it with cash (depending upon the available equity).
Make sure you have a full emergency fund (3 to 6 months of living expenses) before you pay extra on the mortgage since any extra you pay towards your mortgage will not be available funds for a crisis (and you'll still have to pay your monthly mortgage payment even if you've paid extra in the past if you haven't completely paid it off).
If you have any additional debt (especially with a higher interest rate), be sure to pay that off first before you make extra mortgage payments.
Make sure you have a healthy college and retirement savings before you pay extra. Paying of the mortgage early should be your last debt that you pay off.
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I love the idea of getting a 15 year mortgage instead of a 30. We pay more each month and have refinanced once. It is amazing what paying a little more each month makes.
Reply
Katelin
Thanks for sharing! My husband and I are focused on paying off our mortgage as soon as possible by trying to make extra payments on the principle each month. We also did a 15-year loan as opposed to a 30-year. Looking forward to the day when it is fully paid and we are again debt free. I'm excited for the years when we will not have to pay the largest expensive each month and can instead use that money for things such as travel.
Making additional principal payments will shorten the length of your mortgage term and allow you to build equity faster. Because your balance is being paid down faster, you'll have fewer total payments to make, in-turn leading to more savings.
Making extra payments of $500/month could save you $60,798 in interest over the life of the loan. You could own your house 13 years sooner than under your current payment. These calculations are tools for learning more about the mortgage process and are for educational/estimation purposes only.
The 10/15 mortgage rule is a concept made popular by a real estate social media influencer. It suggests that homeowners who can afford substantial extra payments can pay off a 30-year mortgage in 15 years by making a weekly extra payment, equal to 10% of their monthly mortgage payment, toward the principal.
If you pay $100 extra each month towards principal, you can cut your loan term by more than 4.5 years and reduce the interest paid by more than $26,500. If you pay $200 extra a month towards principal, you can cut your loan term by more than 8 years and reduce the interest paid by more than $44,000.
Making an extra payment on your mortgage can help you pay off your mortgage early. It also helps reduce the principal balance quicker which means there is less principal to gain interest. In the long run, your extra payments could help you save money as well as reducing the length of your loan term.
But if you have a relatively recent loan, you're likely looking at tens of thousands of dollars in savings and cutting as much as eight years off the life of your loan. Obviously, not everyone can afford to make two extra mortgage payments a year. You're basically increasing your housing costs by 16%.
Biweekly payments accelerate your mortgage payoff by paying 1/2 of your normal monthly payment every two weeks. By the end of each year, you will have paid the equivalent of 13 monthly payments instead of 12. This simple technique can shave years off your mortgage and save you thousands of dollars in interest.
Ideally, you want your extra payments to go towards the principal amount. However, many lenders will apply the extra payments to any interest accrued since your last payment and then apply anything left over to the principal amount. Other times, lenders may apply extra funds to next month's payment.
Payments made on a mortgage in addition to your regular monthly payment will count toward the loan principal. Extra payments can be beneficial because they apply directly to your loan principal, helping you pay off your loan faster and with fewer interest fees.
Paying more toward your principal can reduce the interest you'll pay over time. Because every payment that goes toward the principal builds equity in your home, you can build equity faster with additional principal-only payments.
This rule states that your total mortgage payment — including principal, interest, taxes and insurance — shouldn't exceed 28% of your gross monthly income. So if you and your partner earn $12,000 before taxes, for example, then your monthly mortgage shouldn't be any higher than $3,360.
A good way to remember the documentation you'll need is to remember the 2-2-2 rule: 2 years of W-2s. 2 years of tax returns (federal and state)Your two most recent pay stubs.
But if you have a relatively recent loan, you're likely looking at tens of thousands of dollars in savings and cutting as much as eight years off the life of your loan. Obviously, not everyone can afford to make two extra mortgage payments a year. You're basically increasing your housing costs by 16%.
In general, a lender won't begin foreclosure until you've missed four consecutive mortgage payments. Timing can vary from lender to lender as well as on the state of the housing market at the time. Lenders generally prefer to avoid foreclosure because it is costly and time-consuming.
If you're on your lender's standard variable rate or you're on a tracker mortgage, there is normally no limit on how much you can overpay your mortgage by. However, fixed-rate mortgages typically have an annual overpayment limit of 10% of your TOTAL outstanding mortgage balance.
If you make an extra payment of $700 a month, you'll pay off your mortgage in about 15 years and save about $128,000 in interest. If $700 a month is too much, even an extra $50 – $200 a month can make a difference.
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