Personal Finance Guides How To Pay Your Mortgage Off Earlier

Do you daydream of the day when your mortgage will finally be paid off? The traditional mortgage is a fixed rate loan repaid over a thirty year term, some may be even longer. What if you could discover how to pay your mortgage off earlier and save loads of money that you would have spent on interest? Instead of finally paying your mortgage off just before you retire, you may be able to pay your mortgage off early and use the extra money to take a trip around the world, send your children to the finest colleges, or even retire early!

If you are a homeowner, or even a potential homeowner already looking for ways to stabilize your financial future, then the following tips on how to pay your mortgage off earlier can save you serious cash.

Get a shorter term loan

One definite way to pay your mortgage off earlier is to get shorter term loan. While standard fixed rate mortgages are 30 year loans, you can also get 20 or even 15 year loans. The shorter the term of the loan, the higher the payment will be. However, you’ll also accumulate a lot less interest so you will end up paying a lot less for the property. Of course, the reason that everyone doesn’t get a shorter loan is that they are more difficult to obtain. Although precise loan requirements will vary greatly, many buyers fail to qualify for shorter term loans because they simply can’t afford the higher payments.

Bi-monthly payments

It’s a shame that many homeowners still aren’t aware that you can pay your mortgage off earlier by making bi-monthly payments. The average homeowner who elects to make bi-monthly mortgage payments can shave seven years off a thirty year loan. Here is how it works: Say your monthly payment is $1,200. Paying bi-monthly you’ll pay $600 every two weeks instead of $1,200 every month. So instead of making 12 payments in a year, you’ll make 26. This actually means you’ll also make a full additional payment on top of paying early. This slashes into your owed interest and makes it easy for you to pay your mortgage off earlier.

Refinancing for a lower rate

Refinancing isn’t just for troubled homeowners. Refinancing can actually help you to pay off your mortgage earlier. Even if you initially chose a 30 year mortgage, you can still try refinancing to a shorter term mortgage. Opt for a no-cost refinance to avoid paying closing costs.

Extra monthly payment on principle

This method allows a bit more flexibility than bi-monthly payments, because you get to choose when and how much you pay. Be sure to ask your mortgage company if they allow prepayments without penalty. You also need to make sure that the money is going towards the principle and not just towards the next month’s payment. Ask your lender what the proper procedure for this is and occasionally check to make sure your money is going where it should be going. You don’t have to make large additional payments to make a difference. Even if you can only add an extra 25 or 50 dollars per month it will add up in the long run.

Additional yearly payment of principle

Making a larger extra yearly payment to the principle amount of your mortgage is another great way to help pay your mortgage off earlier. Many homeowners use their income tax returns or yearly work bonuses. Again, be sure to mark on the check that the extra money you send is to be paid on the principle. Even paying an additional $1,000 dollars a year will reduce the total term by 56 months and will save you approximately 40,000 dollars in interest.

Don’t be moved into thinking that you can only pick one of these methods to help you pay off your mortgage earlier. In fact, you can combine any number of these methods in a way that works for you and pay your mortgage off even quicker. Remember, every little bit helps. Even an extra twenty dollars a month can save you thousands of dollars over the length of your loan. And the sooner that you start, the sooner the day will come when you’ll be free of mortgage payments and the stress that comes with them.