How to Payoff Your Mortgage

It can be a daunting prospect when staring a 30-year loan in the face. Most people will fall into a routine of acceptance and pay their monthly mortgage payment on time, never varying from the suggested principle payment from the bank. They are unaware of the cost associated to the interest payment included in every month’s bill. An average person can wipe years off of their mortgage in several different ways.

Refinancing

The most direct approach a homeowner can use to payoff their mortgage early is to refinance their loan from a 30-year to a 15-year loan. This has its benefits and downsides though. The benefits are that you will be on schedule to payoff your mortgage in half the time it would have taken you with the 30-year loan. The downside is that you will have to pay closing costs again for the refinancing. This can be a viable option if you are able to get a deal on the interest rate, just make sure you know when the best time to refinance your mortgage is.

Paying Extra Towards Your Monthly Principle Payment

Every month when it comes time to pay the mortgage, add an additional amount to the payment and you will be astounded how much money will be saved in the long run. One extra dollar per month can save hundreds, or thousands, of dollars over the life of the loan. Banks are aware of this tactic and generally won’t allow you to set up an automatic monthly principle payment like they do for the mortgage. And why would they? That convenience would cost them a lot of money. The best idea is to get in the habit of sending the bank a check every month for a certain amount that says payment towards principle in the notes. Make sure to double check and see if the payments go through every month. It can be hard to determine how much extra to put towards the principle, using a mortgage calculator can help you determine how much you should pay.

Make a Lump Sum Payment Every Year

It can be hard to train yourself to pay extra towards your principle every month. In that case you could put a certain amount towards the principle at the end of the year, or whenever you run into some extra money. It is hard to predict how much will be saved on the mortgage when there isn’t a specific amount set every month, but you can rest assured that it will help greatly.

Make Bi-Weekly Payments

Many people are switching to bi-weekly payments because the bank will automatically withdraw that amount from your account and you won’t have to do anything extra. Every month your mortgage payment will be cut in half. You won’t have to pay anything extra per month with bi-weekly payments, although there will probably be a one-time set-up fee. This can reduce up to six years on your mortgage by reducing the interest on your principle by two weeks every month. It is amazing how much that adds up to, and you will be able to pay off your mortgage early.