How To Pay Off Your Mortgage Early
The majority of American homeowners rely on mortgages to finance a house. Yet, a staggering 78% of homeowners in the US want an answer to the burning question of how to pay off a mortgage early.
Are you planning to buy a house too? These days, reputed lenders are offering online mortgages, streamlining the paperwork and process to get your mortgage loan approved in a quick and hassle-free manner.
While each mortgage loan comes with a well-planned payment cycle, the burden of interest rates can strain your finances. Naturally, it makes sense to retire the mortgage early if possible.
Still, there is a catch. Since lenders are in the mortgage lending business to make money, they may hit you with prepayment penalties.
Read to explore five simple and quick-fire ways to pay off a mortgage early without facing penalties.
Check For Bi-Weekly Payments
If you are wondering how to pay off your mortgage faster, the first aspects you need to check with mortgage payments are the fines and penalties. You may be charged for withdrawing earlier. However, you could possibly circumvent these restrictions.
Bi-weekly payments allow you to make 26 payments in a year, equivalent to 13 monthly payments instead of the ordinary 12 (1 per month), so that is one installment month paid early.
This may sound like a small aid, but for a loan that exceeds up to 30 years, you receive eight years off simply by going in the bi-weekly direction. Of course, the duration of your payment cycle varies depending upon the interest rate, but in all cases, this is a major discount on a longer loan.
If your bank doesn’t allow bi-weekly payments, you can start saving on a fifteen-day cycle instead of the thirty-day cycle. You run faster than the banks, and your mortgage amount is ready on the date that is decided.
You are already paying a lot of interest if you have signed up for a 30-year mortgage. Naturally, you would want to know how to pay off a mortgage early.
You could look at refinancing your mortgage for a period of fifteen years.
If you are already on a fifteen-year plan, you might consider cutting more money from your monthly budget and setting it up for a ten-year mortgage. Remember, the faster you repay, the less interest is paid.
When refinancing, you would need to chart the interest rates involved and the actual cost that you would end up paying. For this very purpose, you should look at the APR of the mortgage.
Get The House You Are Most Comfortable In
One of the best answers on how to pay off mortgages faster is to get a smaller home. It is simple: the bigger the house you are looking for, the more you are going to pay.
To have a hassle-free mortgage settlement in the future, you need to answer a fundamental question: how much money will you be earning per month for the following years to come, and will it be enough to cater to not just the mortgage but also to the lifestyle you want?
While calculating this, you should only consider the absolutes, like the salaries that you and your spouse currently draw, and any investments that will mature in a couple of years.
Getting a big house and then being unable to pay the mortgage is something nobody wants to experience. Another option is to downsize your existing house. Selling off your house and shifting to a small home is a good idea.
You can pay off the mortgage quicker and be the proud owner of a house – albeit a smaller one.
Make An Enormous Down Payment
It is logical to make a big down payment and have a smaller loan amount to tackle over the years. Try to get the down payment up to 20% or even 30% of the total amount if possible.
The extra dollars you put in can be taken as a down payment for the next installment’s interest. This would leave your principal balance unaffected, thus, in no way shortening your mortgage cycle.
If you do choose to pay off the principal amount as a one-time lump sum, it is important that you inform the lender beforehand. Send them a written note stating clearly that you intend to pay for the principal balance. You could also inquire about the formalities corresponding to early down payments.
Many monthly expenses can be whittled down and when you really think about it, some large expenditures can be downright stopped. For instance, think about all the money you spend on eating out.
Did you know the average American spends about $3 per day just on coffee? Making coffee at home can save an immense amount over time. Lunchtime is another hole that borrowers regularly throw money at. Indulging from time to time is perfectly alright, but limiting the food trips to once or twice a week would make substantial savings.
A strong financial foundation requires saving for your future and clearing all of your debts first before giving in to regular indulgences.
Considering how mortgage premiums are easily the biggest bill of the month, it wouldn’t hurt to start saving up. By setting aside a well-calculated and significant sum from your earnings that is solely intended for early release from your mortgage, you can ensure earlier repayment without sacrificing much in the way of your lifestyle.
Don’t Be Afraid To Ask For Help During The Process
Remember, it never hurts to get professional help. It always pays to speak with the bank or mortgage broker that approved your loan to understand and carefully evaluate your options for early repayment without having to necessarily face a prepayment penalty.
The only question that remains is, “with all these hacks deployed, how fast can I pay off my mortgage?”
Ultimately, repayment speed depends entirely on you along with your decisions, ability to save, and lifestyle choices which will pave the path towards clearing your mortgage early.