How to pay off your mortgage early
Most homeowners want to get out of their mortgage early for various reasons. Some may want to simply eliminate the pressure of having to pay off debt regularly or to pay off early so as to ease the cash flow. Whatever the motivation paying down your mortgage ahead of time reduces the amount of interest you pay on the loan. This can be a substantial savings. Here are some early payoff strategies to help you achieve that goal.
Make extra payments
One way to pay off your mortgage early is by paying extra against the principal each month or make an extra principal-only payment annually. It can also save you tens of thousands of dollars in interest over the life of the loan. If you go this route, make sure to check with your lender that the payments will be applied in the correct way to reduce the principal, not prepay the interest. You’ll also want to make sure the lender understands the extra payment is not for the next month’s mortgage payment.
Cut down on expenses
Surely going out for lunch with your friends sounds fun, but so is paying off your mortgage early. You could also reduce the number of time that you eat out, go on holidays, or buy unnecessary electronic gadgets. In as much as this might seem as if it is not feasible, the truth is this is one of the best ways to help one to save more, thus paying off the loan early.
Refinance your mortgage
Refinancing your mortgage to pay it off early only makes sense if you can get a lower interest rate or shorten the loan term. Be mindful that there are costs associated with refinancing, so you’ll want to make sure the savings outweigh those costs.
Refinancing into a shorter-term loan, such as switching from a 30-year mortgage to a 15-year mortgage, can also help bring down your interest rate while putting you on the path to early payoff. However, with a shorter term, your monthly payment will be higher, which could stretch your budget too thin.
Can you pay off your mortgage early?
In most cases, you can pay your mortgage off early without penalty but there are a few things to keep in mind before you do.
First, reach out to your loan servicer to find out if your mortgage has a prepayment penalty. If it does, you’ll have to pay an additional fee if you pay your loan off ahead of schedule. This can affect whether paying your mortgage off early is financially viable for you.
Second, make sure there aren’t any restrictions on how and when you can make additional payments. Some loans have terms that encourage you to follow the payment schedule, and it’s important to ensure that whatever extra payment you make goes to the principal and not interest.