All homeowners dream of living mortgage-free, and paying your mortgage off early could help you to have more financial stability. If you can pay it off early, you might be able to save some money by accruing less interest. Here are a few different ways that you could use to pay off your mortgage early.
Refinance Your Mortgage
If you notice that interest rates are dropping, then you might be able to reduce the amount you spend on interest by refinancing your mortgage. You could also lower your loan term by a large amount. Just make sure you do your research thoroughly and take advice from first-class legal services. Understand how refinancing will impact your mortgage and what you owe. It can help you to pay off your mortgage earlier but could mean higher monthly payments. Don’t end up paying more than you can afford.
Make Extra Mortgage Payments
Another way that you could save some money on the interest on your mortgage, while still lowering the term of your loan is to make some extra payments on your mortgage when you can. Some lenders will charge you a penalty for paying off your mortgage early, so check if yours do this before you decide to pay extra. If your lender doesn’t charge a penalty for doing this, then you could think about a few different strategies to pay off your mortgage early.
If you do decide to make extra payments on your mortgage, remember to tell your lenders that any extra payments should be applied to principal, and not to interest. Otherwise, your lender could choose to put the payments toward future scheduled monthly payments, which won’t end up saving you any money.
If you want to make extra payments on your mortgage, then you ought to try to prepay at the beginning of the loan when your interest is at its highest. The majority of your monthly payment for the first few years of paying your mortgage off actually goes toward interest, not principal. Interest is compounded, which means that each month’s interest is determined by the total amount that is owed.
Make One Extra Mortgage Payment Each Year
Just making one extra mortgage payment every year could reduce the term of your loan by quite a lot. Not everyone is able to afford to make regular extra payments on their mortgage during the year, but even one extra payment each year can help you to pay off early.
The way to do this that is kindest on your wallet is to pay 1/12 extra each month. Split one extra payment across each monthly payment, so the extra amount is very small, which should be affordable for most people. For example, if you paid $975 each month on a $900 mortgage payment, you will have paid the equivalent of an extra payment by the end of the year. For an extra $75 a month, you can get on your way to being mortgage-free.