Have you ever wondered whether — or how — you can pay off your mortgage early? By making a few changes to your monthly mortgage payments, or refinancing your loan, you may be able to make your last mortgage payment earlier than you expect.
Here are three ways you can be mortgage-free faster.
Switch to Biweekly Payments
Most homeowners pay their mortgage once every month. Instead, ask your lender if you can make two half payments, every two weeks.
Although this shouldn't change your monthly budget too much, this schedule will result in 13 full-size payments each year instead of the standard 12, because there are 52 weeks in a year.
For example, you have a $250,000 30-year fixed-rate mortgage at an interest rate of 4.5%, making twice-monthly payments would allow you to pay off the loan almost five years early.
Pay Extra on Your Loan Principal
Your monthly mortgage payment consists of a principal payment and an interest payment. Your interest payment is calculated based on your unpaid principal balance — the amount of the loan that you have not yet repaid. By making extra principal payments, you can reduce both the total interest you pay and the time it will take to pay off your mortgage.
Wondering where to get that extra money?
- Round up: Designate a little extra on each mortgage payment to be put toward paying your principal. An easy way to do this is by rounding up your payments. For example, if you have an odd payment amount, such as $1,123 per month, round it up to $1,200.
- Use extra cash: Did you receive a tax refund this year? What about an end-of-year bonus? Consider putting that extra money toward paying off your principal.
Another opportunity to pay off your mortgage sooner is through refinancing. If you opted for a 30-year fixed mortgage, consider shortening your term to a 15-year or 20-year term. The shorter the mortgage term, the less interest you will pay over the life of the loan, which could save you thousands of dollars.
Keep in mind that, if you shorten your mortgage term, your monthly payments will likely increase. Be sure to discuss refinancing options with your lender, who can help you determine what best suits your goals.