🏠Ways to Pay Off Your Mortgage Early ⏰

If you have a standard 30-year mortgage, that mortgage is almost certainly the debt that you will be paying off for longer than any other debt you have. This is the reason that many homeowners seek to pay off their mortgage early. If you are one those homeowners looking to take months or years off repaying this debt, the following tips will help you pay off your mortgage both early and as efficiently as possible.
Refinance to a Lower Interest Rate
If interest rates have dropped since you first mortgaged your home, refinancing to a lower rate can potentially speed up the rate you pay off your mortgage. For this to work, you need to tell the bank that you want to continue to pay the same amount of money every month. The only way for your payments to remain the same if your interest rate drops is for the total duration of the mortgage to decrease.
It is important to note that this strategy includes a closing fee for refinancing. If the interest rate doesn’t drop by enough, this closing fee will actually cause you to incur a higher total cost, even though you pay off the mortgage more quickly. It is best to discuss the closing fee and the total expected savings with your mortgage officer to determine whether this pays off in the long run.
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Switch to Bi-Weekly Payments
Nearly every standard mortgage requires payment once a month, but most banks will allow you to pay bi-weekly instead. When adjusting the payment structure, negotiate for the new payments to be half the cost of the old payments. Because there are 52 weeks in a year, this results in 26 payments at 1/2 the cost you were paying before. Effectively, you are now making your old payments 13 times a year, which will result in a few years being cut off a 30-year mortgage. This strategy works best if you are paid weekly or bi-weekly and doesn’t work particularly well if you are paid monthly.
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Send Extra Principal Payments
As long as you are fully paying on schedule, most mortgage lenders will allow you to pay additional money to pay off principal only. If you want to do this, discuss this option in advance with your lender, to ensure you follow any bureaucratic guidelines the bank has for paying off principal. Usually it is no more difficult than sending an extra check with “Principal Only” written on the memo line, but it may require a little more effort. The earlier you pay off principal, the greater the benefit in terms of total time to pay off the loan.
Start an Investment to Pay Off the Mortgage in a Lump Sum
One of the main reasons not to pay off a mortgage early is because the money spent on a mortgage can often earn a better interest rate in a long term investment than the interest rate of your mortgage. However, there is a way to get around this.
Invest whatever extra money you would spend on your mortgage in a long term investment that can be divested from relatively easily (within 6 months or less). Keep track of the exact amount of the principal money you have invested in the fund. When that principal amount equals the remaining amount on your mortgage, pay off the mortgage with that money. This lets you keep the interest from that invested money while still using it to pay off your mortgage more quickly.
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